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Business Arithmetic — Entrepreneurship STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceEntrepreneurshipBusiness Arithmetic3 Marks
Question
What is meant by capital? Why does a business needs capital?
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Answer

For starting up a new venture and also for efficient running of the present business or for growth and expansion plans, a business needs funds. These funds are termed as capital. So, capital is basically money invested in business.
A business needs capital for:
  1. procuring or investing in long-term assets such as land, building, machinery, equipment, etc. These assets are termed as fixed assets. These assets assist in the production process.
The money invested in these assets is known as fixed capital.
  1. a business also needs funds for day-to-day operations, such as buying raw materials, packing materials, paying rent, insurance premium, utility bills, wages and salaries, etc.
The money needed to fund these expenses is known as working capital.

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