What Is Capital in Accounting?
Accounting Basics
Explained Simply
For a sole proprietor, capital is the owner's capital account: money put in, plus profits kept in the business, minus drawings. For a Pty Ltd, the equivalent is share capital (what shareholders paid for their shares) plus retained earnings. Capital is different from a loan, which must be repaid and is a liability. Working capital is a separate idea: current assets minus current liabilities, showing whether a business can pay its short-term bills. Do not confuse capital with capital gains, which is the profit on selling an asset and is taxed separately in South Africa. Capital items bought for long-term use, such as vehicles or equipment, are recorded as assets rather than expensed.
Related Terms
- Balance SheetA balance sheet is a financial statement that shows a business's assets, liabilities, and equity at a specific point in time, following the equation: Assets = Liabilities + Equity.
- Capital Gains Tax (CGT)Capital gains tax is a tax on the profit made when selling a capital asset such as property, shares, or a business in South Africa.
- AssetsAn asset is a resource that a business controls as a result of past events and that has the potential to produce economic benefits.
- LiabilitiesLiabilities are the amounts a business owes to other parties, arising from past events and expected to be settled by paying cash or transferring goods or services.