What is 'Capital' in accounting?
Ok, so I'm trying to get a sense of the term 'Capital' in accounting.
1. Capital Asset
2. Capital Budgeting
Does Capital basically mean 'big'?
- Jimmy CLv 72 months ago
Capital means money or financial assets.
- GA41Lv 72 months ago
Capital in accounting can mean money. IF an investor contributes $100,000 of capital to a business, he is providing funds for investment. A capital asset is generally one subject to depreciation. Tax laws allow some assets to be written off over the life of the asset. I could by $100,000 of packaging, which may be expensed in the current year. Or I could buy a truck for $100,000 which I could depreciate at $10,000/year for the next 10 years. The truck would be a capital asset, the packaging would not be even though each cost $100,000. It does not necessarily simply mean big. It depends on the life of the asset.
A capital budget is often the investments spent on projects and capital investments that will be depreciated. A company may set aside $10,000,000 for capital investments in expansion projects ore equipment which will ultimitaley be depreciated (capitalized). This money may come from earnings or borrowings. The strategy for financing would be part of the capital budget.
- Anonymous2 months ago
The short answer is in accounting capital means assets.
In Economics or common usage the definition is different.
- Uncle PennybagsLv 72 months ago
It means big and long lasting.
A building would be a capital asset. Or an expensive machine that you will be using for years.