Capital – What is capital?

Capital can include cash or other assets introduced into a business by the owners

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Generally speaking, the term ‘capital’ refers to any financial resources or assets owned by a business that are useful in furthering development and generating income.

However, in different contexts, the term can have a variety of other meanings.

Here are a few:

• Capital can refer to funds raised to support a particular business or project.
• Capital can also represent the accumulated wealth of a business, represented by its assets less liabilities.
• Capital can also mean stock or ownership in a company.

How it differs from money

While it may seem that the term capital is almost the same as money, there is an important difference between the two. Money is used for the purchase and sale of goods or services within a company or between two companies or individuals and therefore has a more immediate purpose.

Capital, however, also includes assets such as investments, stocks, and other assets that are more long-term and could benefit the company in the future. Capital involves the aspects of a company that help build and improve it, that form its base for generating revenues.

Associated terms

Other terms that relate to capital include:

• Capital gains: increases in the value of stock and other assets when they are sold.
• Capital structure: the mix of debt and equity in the business balance sheet.
• Capital improvements: improvements made to capital assets.
• Working capital: the value of the assets minus the current liabilities.

Tax on capital

Because capital is owned by a company, it is protected. However, capital ownership can be transferred or sold and, in certain situations, faces tax.

Capital that has appreciated in value over the course of a company’s ownership from time of purchase to time of sale (capital gains), could be liable to tax. These taxed amounts go to the public benefit.

Debitoor and capital

Cloud-based invoicing and accounting software such as Debitoor, gives you the tools you need to manage the cashflow of your business. This includes registering assets, such as property, that can be considered capital.