Money is required for all types of business activities be it manufacturing or trading or transportation or any other kind. It is true that income is earned by business when goods are sold and services have been rendered. But this takes place afterwards. Goods must be produced or purchased before they can be sold. Arrangement of finance is therefore necessary much before any income can be earned. It costs money to build a factory, to buy machinery and raw materials, to hire a place for the business office, to pay rent, wages and salaries, and to meet to day expenses. So no one can run a business without first raising adequate finance, of course this is done in anticipation of future income, on the assumption that customers will buy the goods and services offered to them.

Fixed Capital: In every business concern money has to be invested in some fixed or durable assets like land, buildings, machinery, equipment, furniture, etc. These assets are required for permanent use, that is, for a long period of time. Funds required to purchase these assets.is known as fixed capital or long-term capital.

Working Capital: Money invested in current assets like stock of raw materials, finished goods, etc., and book debts (that is debtors balances as well as bills receivable) is known as Working Capital.