Capital is the money owners put into a business to get it started or to grow it, recorded as share capital or owner's capital within equity on the balance sheet. More broadly, the word is also used for the funds a business has on hand to invest in its operations.
What it means
Capital contributed by owners sits alongside retained earnings to make up total equity - the two sources of the equity balance are what owners put in directly and what the business has earned and kept. Capital is distinct from working capital, which measures short-term operating liquidity rather than owner investment.
Key rules
- Funds owners contribute to the business, recorded within equity.
- One of the two sources of equity, alongside retained earnings.
- Distinct from working capital, which is a liquidity measure, not an investment.
- Also used loosely for funds available to invest in operations.
