Circulating Funds

the part of the circulating capital of socialist enterprises (associations) operating on the basis of profit-and-loss accounting that is directly involved in marketing. Circulating funds consist of inventories of finished goods, stocks of commodities at trading organizations, and packaging and other materials used in marketing; also included are accounts receivable and cash, both on hand and on deposit. Together with production assets, circulating funds ensure continuous production at socialist enterprises.

When the production process is completed, circulating funds assume the form of finished goods that have been processed at a given enterprise and that have passed inspection. After being packaged at the warehouse, these goods are shipped to the customer. At the time of sale, the circulating funds assume a monetary form, with the proceeds being credited to the enterprise’s settlement account at one of the branches of the State Bank of the USSR. These proceeds are then used for production reserves, wages, and other production costs.

The inventories of finished goods in the warehouse must conform in quantity to certain norms; these stocks make up part of the enterprise’s normative circulating capital. They are formed from the enterprise’s own working capital (for inventory levels within the limits of the norm) and from bank credits (for inventory levels above the norm). Goods that have been shipped, together with monetary resources on account and on hand, make up the enterprise’s nonnormative circulating capital. This capital is formed from bank credits and accounts payable, the latter representing amounts owed to other enterprises and organizations under various settlement agreements.

The structure of circulating funds depends on the nature of the productive activity of enterprises and on the terms of supply and settlement governing transactions between suppliers and customers. As of early 1975 in the USSR, circulating funds amounted to more than 160 billion rubles, that is, 55.4 percent of all the circulating capital in the national economy (57.8 percent in 1965), including more than 30 billion rubles in industry (31.3 percent of industrial circulating capital). In the circulating funds of the national economy, inventories of finished goods held at the enterprise occupy 6.0 percent, commodity inventories 49.7 percent, goods shipped and services rendered 12.1 percent, monetary resources 15.7 percent, and receivables 16.5 percent.

Circulating funds increase with growth in the production and sale of both producer and consumer goods. In addition, conditions are created for reducing marketing time and for accelerating the turnover of resources in the various stages of the supply and sale of commodities. Faster turnover means that some of the resources tied up in circulating funds can be freed for other purposes. The acceleration of the turnover of circulating assets in the marketing sphere is of great importance for developing the national economy and increasing the efficiency of social production.