Define Capital in terms of Accounting

Define Capital in terms of Accounting

Capital can refer to funds raised to maintain a particular business or project. It is the quantity invested by the owner/s in the business. This quantity is increased by the total of profits earned and the amount of further capital introduced. It is decreased by the amount of losses incurred and the amounts withdrawn.

Capital can also symbolize the accumulated prosperity of a business, represented by its assets less liabilities. Capital can also mean stock or ownership in a company. It involves the aspects of a business that facilitate build and develop it, that form its base for generating revenue.

Capital is divided into two major forms.

  • Fixed capital: Fixed capital is excess of fixed assets our fixed liabilities.
  • Working Capital: Working capital is excess of current assets over current liabilities.