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Related to Circulating Capital: working capital, Fixed capital, Floating capital
the monetary capital of an economically accountable socialist enterprise or organization that is used to create production stocks of raw and processed materials, fuel, packing materials, tools, and production and domestic accessories. It is also used to create stocks of unfinished goods and inventories of finished products. Circulating capital is also invested in bank accounts and in monetary balances maintained at the disbursing office of the enterprise or organization. One portion of circulating capital serves the production process while the other functions in the sphere of circulation.
Circulating capital is either normative or nonnormative. The former consists of stocks of material assets, including both unfinished goods and finished products; the latter is made up of goods shipped, capital held on account, and monetary capital. Circulating capital within the national economy of the USSR at the beginning of 1973 totaled around 246 billion rubles, more than 187 billion rubles of which was normative. Of the 69 billion rubles of normative circulating capital devoted to industry, about 60 percent was invested in production stocks, 21 percent represented incomplete production, and 14 percent represented inventories of finished goods and merchandise. By source of formation, circulating capital is either generated from within the enterprise or borrowed from without, with credits from Gosbank (State Bank of the USSR) to meet temporary needs. Internally generated circulating capital is allocated annually, based on minimum enterprise size as measured against standards for the creation of production stocks, the backlog of unfinished production, and stocks of finished products. This capital is reflected in the statutory fund. Enterprise needs for capital exceeding this minimum are met through short-term bank loans and normal indebtedness to suppliers. Expenditures that arise during the sales process, that is, from the moment the finished products are shipped until the receipts from their sale arrive in the supplier’s bank account, are covered by bank credit.
Circulating capital generated from within the enterprise may be drawn away only on the basis of an annual report indicating that the amount of such capital available exceeds requirements according to standards. Standards for internally generated circulating capital are determined by the enterprise itself on the basis of existing plans for the supply, production, and marketing of output and with due regard for such concrete economic conditions as frequency of supply, geographic dispersal of suppliers, and forms of payment to be employed. An increase in circulating capital generated from within the enterprise may be secured according to the financial plan out of enterprise profit, out of growth in fixed liabilities, out of redistribution of such capital by higher-level economic organizations, and in some cases out of the state budget.
Sectorial ministries and production associations have reserve funds of circulating capital intended for temporary financial assistance to lower-level enterprises and economic organizations. To stimulate improved use of an enterprise’s and an organization’s own circulating capital, a charge is imposed for the use of this capital, payable to the state budget. This charge is ordinarily 6 percent of the average annual sum of capital used. A differentiated annual rate that ranges from 1 to 8 percent, depending on the type and purpose of the loan, is charged for the use of capital borrowed from other sources.
Circulating capital is an important element in organizing economic activity on the basis of economic accountability. The realization of the principle of paying-back adequacy at the enterprises and economic organizations involved—with respect to current, noncapital expenditures, economic efficiency, prompt and complete payment for goods received and services and other work performed, observance of contracts, and meeting of mandatory payments to the state budget and for bank credit—results to a large extent from the planned movement of such capital. Any speedup or slowdown in the turnover of circulating capital has a direct economic effect. Improving the use of circulating capital and accelerating its rate of turnover are important factors in raising the efficiency of social production. The movement of circulating capital affects all types of economic process. A shortage of capital goods at any stage of funds circulation among socialist enterprises disrupts smooth and continuous production and circulation.
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V. L. PERLAMUTROV