GlossaryWhat is capital?

GLOSSARY

What is capital?

Capital refers to assets that hold value and can be put to work in a business as a form of investment.

Understanding what capital is and how it works is crucial for those who run their own business.

Capital (definition)

The term capital refers to financial resources, such as money or assets, that are used to start, operate, and grow a business.

While valuable assets or cash are classed as ‘capital’ in and of themselves, the term is more often used to describe resources that are being put to work in a business for the sake of growth, purchasing inventory or hiring staff.

Examples of capital include:

Working Capital Definition
  • cash
  • equipment
  • property
  • investments or shares
  • intellectual property.

What are capital assets?

Capital assets are generally long-held assets that a business can use to generate profit. Capital assets are usually long-term investments and are not intended for resale as part of your regular business operations.

Examples of capital assets include:

  • property
  • equipment
  • vehicles

What’s working capital?

Working capital is an extremely important calculation that every business owner should know as it speaks to the level of free cash to run and expand your enterprise.

A business’s working capital is the difference between ‘current assets’ (like cash, accounts receivable, and inventory) and ‘current liabilities’ (such as accounts payable and short-term debts).

Working capital is essentially the unencumbered funds available for a business’s day-to-day operations.

What’s equity capital?

Equity capital refers to the amount of stock a company sells in the form of shares. Equity capital speaks to the level of ownership or the amount of funds that investors have paid into a company.

See related terms
What does accrued mean?
What is a ledger?
What is working capital?
What are fixed assets?

 

Additional resources

Disclaimer
This glossary is intended for small business owners and contains definitions suited to their needs. For more comprehensive explanations, we recommend consulting an accounting or bookkeeping professional. Reckon does not offer accounting, tax, business, or legal advice.

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