{"id":271729,"date":"2023-12-20T11:19:23","date_gmt":"2023-12-19T23:19:23","guid":{"rendered":"https:\/\/www.reckon.com\/au\/?page_id=271729"},"modified":"2026-07-14T16:30:56","modified_gmt":"2026-07-14T04:30:56","slug":"capital","status":"publish","type":"glo","link":"https:\/\/www.reckon.com\/au\/glossary\/capital\/","title":{"rendered":"What is capital?"},"content":{"rendered":"

[et_pb_section fb_built=”1″ custom_padding_last_edited=”off|desktop” _builder_version=”4.27.2″ custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” custom_padding_phone=”0px||||false|false” da_disable_devices=”off|off|off” locked=”off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.27.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f3f2f6″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Definition description” _builder_version=”4.27.7″ header_2_font_size=”32px” hover_enabled=”0″ header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n

Capital is the wealth, financial assets and resources a business or individual holds for investment or production. In finance and accounting, capital refers to money used to fund business operations.<\/p>\n

What does capital mean in accounting?<\/h2>\n

In pure accounting terms, capital represents the value of the investment in the business by the owner or owners. It\u2019s a central part of running a business from day to day and financing future growth.<\/p>\n

[\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2023\/12\/Capital-definition-2.png” alt=”What is capital in accounting definition, capital is the financial resources to grow a business and fund its operations” title_text=”Capital Definition 2″ align=”center” admin_label=”Image” _builder_version=”4.27.7″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” sticky_enabled=”0″][\/et_pb_image][et_pb_text admin_label=”Definition description + related terms” _builder_version=”4.27.7″ header_2_font_size=”32px” hover_enabled=”0″ header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n

But in a broader sense, the word \u2018capital\u2019 can describe anything that confers value or benefit to its owners, including intellectual property, natural resources, financial assets, and plenty more.<\/p>\n

Capital is, in most cases, the lifeblood of a business because it sets the foundation for acquiring equipment, hiring employees and funding everyday operations.<\/p>\n

Why is capital important for a business?<\/h2>\n

Capital is integral to how most businesses operate and grow. Small businesses especially rely on capital to invest in other assets and finance daily activities. Without the financial resources that capital provides, businesses will struggle to survive.<\/p>\n

Companies use their capital to pay for the ongoing production of goods and services to generate profit. Investing capital in production processes can result in higher production levels, which generate more profit and supercharge economic growth.<\/p>\n

Getting capital is vital for improving employee productivity and meeting market demand. Companies have to manage how they invest their capital to achieve a return on investment.<\/p>\n

Anything held for business purposes that creates value is considered capital.<\/p>\n

What are the four types of capital?<\/h2>\n

Most accountants categorise capital into four main types, all based on the source and function. Your business capital structure defines the mix of debt capital, equity capital, and working capital for daily expenditures.<\/p>\n

1. Debt capital<\/h3>\n

Debt capital refers to gaining capital assets through borrowing. A business can acquire capital by taking out a loan from a bank (or another financial institution), and the borrowed money is debt capital.<\/p>\n

Issuing bonds to raise capital is another example. On your balance sheet, debt capital has a corresponding debt liability. Debt financing requires regular repayment with interest, so you\u2019ll need an active credit history to obtain it.<\/p>\n

2. Equity capital<\/h3>\n

Equity capital serves as a revenue-raising activity through the sale of shares and stocks of the business. Equity financing can come in several forms, including private equity capital and public equity capital.<\/p>\n

Private equity capital is raised through a closed group of potential investors. Public equity, on the other hand, is raised by listing a company\u2019s shares on a stock exchange.<\/p>\n

Equity capital can come in various forms, but both build the owner\u2019s equity in the business.<\/p>\n

3. Working capital<\/h3>\n

Working capital is the money or liquid capital assets needed for a business\u2019s daily operations. It\u2019s a company\u2019s liquid capital assets available for fulfilling daily obligations.<\/p>\n

Working capital is calculated by subtracting current liabilities from current assets. Positive working capital means the business can meet its immediate debts and is a measure of short-term liquidity.<\/p>\n

A company that has more liabilities than assets could soon run short of working capital, so tracking it closely is a must for to managing cash flow<\/a>.<\/p>\n

4. Trading capital<\/h3>\n

Trading capital is the amount of money allocated to an individual or firm for buying and selling securities. A common feature in trading markets, it involves investments and securities across multiple exchanges.<\/p>\n

What are capital assets?<\/h2>\n

They are long-held assets a business uses to generate profit<\/a>. They are usually long-term investments and not intended for resale as part of regular business operations.<\/p>\n

Capital assets can appear on either the current or long-term portion of the balance sheet. Capital is cash or liquid assets held or obtained for expenditures, and some examples of capital assets include:<\/p>\n