Difference between Fixed Capital Account and Fluctuating Capital Account

What are the major differences between Fixed Capital Account and Fluctuating Capital Account?

Have you ever heard of a fixed capital account and a fluctuating capital account? These are two different types of accounts that are used to keep track of money in a business.

The main difference is that the fixed capital account is used to keep track of money that is used to buy things that are needed to run the business, like machines and buildings. The fluctuating capital account is used to keep track of money that is used to buy things that are needed for a short period of time, like raw materials or supplies.

Before we move to the differences, let’s understand what are Fixed Capital Account and Fluctuating Capital Account:

  • Fixed Capital Account: A fixed capital account is an account that is used to track the money that a business uses to buy things that are needed to run the business, like machines and buildings.
  • Fluctuating Capital Account: A fluctuating capital account is an account that is used to track the money that a business uses to buy things that are needed for a short period of time, like raw materials or supplies.

Fixed Capital Account vs Fluctuating Capital Account

Now, let’s move to Fixed Capital Account vs Fluctuating Capital Account:

Major differences between Fixed Capital Account and Fluctuating Capital Account

Fixed Capital Account Fluctuating Capital Account
The fixed capital account is used to track long-term investments. The fluctuating capital account is used to track short-term investments.
The fixed capital account includes things like buildings and machinery. The fluctuating capital account includes things like raw materials and supplies.
The fixed capital account is used to track the money that a business uses to buy things that are needed to grow the business. The fluctuating capital account is used to track the money that a business uses to buy things that are needed to produce products or services.
The fixed capital account is used to track the money that a business uses to buy things that are not easily replaced. The fluctuating capital account is used to track the money that a business uses to buy things that are easily replaced.
The fixed capital account is used to track the money that a business uses to buy things that will be used for a long period of time. The fluctuating capital account is used to track the money that a business uses to buy things that will be used for a short period of time.

That’s it.

Note that sometimes, the question might also be asked as “distinguish between Fixed Capital Account and Fluctuating Capital Account”.

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Final words

Whether you are a small business owner or an employee of a large corporation, understanding the differences between fixed capital accounts and fluctuating capital accounts is essential.

These two types of accounts help businesses track and analyze their investments and expenses, which is critical for making sound financial decisions. By understanding how these accounts work, you can better support your organization’s financial success.

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