In its simplest form, capital means the funds brought in to start a business by the owner(s) of a company. It is an investment by the proprietor(s) or partner(s) in the business. Bringing equity into a business can mean money or assets as well. It is business’ liability towards the owner(s) also referred to as one of the internal liabilities of the business. It is also called Net Worth or Owner’s Equity.
Examples include vehicles, patents, buildings, etc.
- It can increase with fresh investments or profits earned by the business.
- It can decrease with drawings made by the owner(s) or losses incurred by the business.
What Type of an Account is Capital and Where is it Shown in Financial Statements?
It is a liability for the business and, according to the traditional classification of accounts, it is a Personal A/C. Capital is shown on the “Liability” (left hand) side of a balance sheet.
Short Quiz for Self-Evaluation
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