Capital Maintenance Concepts
Capital maintenance is a crucial step to take if you want your business to be successful in the long run. It is an accounting concept based on the principle that income is only recognized after capital has been maintained, or in another scenario, when there is a full recovery of costs.
Capital maintenance is attained if the amount of a company’s capital at the end of a period is unchanged from that at the beginning of the period. Any excess amount is thus treated as profit.
Companies with efficient budget planning have been proven to be more stable in terms of a crisis as compared to those without.
This concept will benefit you and your company because it can aid in fitting in a stipulated budget for projects. It helps to protect the issued capital of the company for the benefit of creditors. Hence you can analyze your company progress in the current moment and also have a contingency fund for the future.
In truth, this is a concept which accountants specialize at. But having the basic foundation on this issue is essential for you to better understand how your company works. In addition to that, you can discover the strategies tactics which can prevent you from being conned. You can also take credit for being able to stabilize the financial budget of your company such that you can make necessary financial decisions that can benefit your company in the long run without making losses.
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Capital Maintenance Concepts