Circulated capital

Question BankCategory: Income TaxCirculated capital
Kollipara sundaraiah asked 2 years ago

One of first time i.t.return filed person(new assess)
Circulated capital rs.10 lacs
Sundry debtors rs.9 lacs
Cash and bank balance as.1 lacs
Amounts shown in balance sheet.
What is the meaning of circulated capital and maximum and minimum circulated capital amounts showns balance sheet under i.t.act.

1 Answers
Vinay answered 2 years ago

Circulated / Circulating capital in the money required for day to day business operations like operating expenses and inventory cost etc. Circulating capital is also called as revolving capital. Some people use the term circulating capital interchangeably with Working Capital. But Circulating capital and working capital are actually different. 
Working capital is arrived at by deducting current liabilities from current assets. But Circulating Capital is money blocked in current assets and kept in hand or bank for meeting out day to day business operation like operating expenses. 
In your example circulating capital is arrived at by adding sundry debtor and cash/ bank balance which comes to Rs. 10 lakh. But maximum and minimum (range) requirement of circulating capital depends on number of factors like industry, seasonality , business size etc. 
Apart from circulating capital, fixed capital is the money blocked in long term assets i.e. fixed assets. Long term sources of funds like long term debts are used for fixed capital but short term sources of funds are used for circulating capital like cash credit limit and short term borrowings. 

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