What is capital maintenance?

Capital maintenance is the accounting principle that it states that the company's profits can only be calculated after the initial capital is fully obtained. In some cases, only partial amounts of capital should be maintained. The company has a better chance of overcoming business risks and financial threats if its capital is regained or maintained. For example, a person already has $ 10,000 in the US (USD) and earns more than $ 30,000. Its existing funds are then deducted from its earnings, which is its net income in total of $ 20,000. It is a contrasting accounting concept with the transaction method in which the person's expenses are deducted from their income. In financial maintenance of capital, only money is included in the calculation of the company's net asset. Financial funds Initially own companies are deducted from earnings for specific duration. If the calculated amount exceeds the initial amount, the company earned a profit. Even the office itself is considered to be physical capital. The initial work capacity of the company is compared with PRAccess capacity at the end of the period. If physical assets increase the capacity of the company, the company brought revenue.

Physical approach provides a more holistic way of calculating profits because it includes non -financial aspects such as machines, time and work. The financial approach, on the other hand, offers a more practical and tangible method of calculating fixed value. Capital maintenance also includes the term calling "Capital Recovery", which occurs as soon as the company regains the amount of its initial capital. Once the capital has gained them, the following income is already considered profits.

Capital maintenance is important for companies not only to prevent future failures, but also for estimating their total value. The accounting concept is also necessary for creditors to help them decide whether the company qualifies a loan. Many companies today get their initial capital from bankCH loan and capital maintenance provides a reference point how long it will take to repay the loan. A company that quickly achieves capital maintenance will also be better with future creditors.