CAPITAL

CONTENT

1. Meaning of Capital
2. Types of Capital
3. Importance of Working Capital
4. Calculation of Working Capital

Meaning of Capital

This is the total amount of money employed to run a business. It represents any form of wealth set aside for the production of further wealth.

There are two schools of thought or views above the above definition. These views are the accountant point of view and the economist point of view.

Accountant’s Definition of Capital

This is the total assets of a business entity, less its liability due to third parties outside the firm. It is also the original money with which a person used to start a business. It can be derived as follows:

Total Assets ― All liabilities = Capital

Economists’ Definition of Capital

Capital is wealth reserved or used for the production of more wealth. It is also referred to as any man-made tool or equipment that helps in the production of goods and services.

Layman’s Concept of Capital

To the layman, capital is the total amount of money for running a business.