6. Owner's Capital or Capital:
Owner's capital or Capital at the commencement of a business refers to the money (i.e., cash) or money's worth (i.e., goods, furniture, buildings, etc.) introduced or invested by the proprietor or owner in the business. In other words, it is the amount (i.e., money or money's worth) with which the proprietor has started his business.
Owner's capital at any other point of time is the net worth or net assets of the business which belong to the owner. In other words, it is the excess of the assets of the business over the liabilities, which belong to the owner. In short, it is the excess of the assets over the liabilities.
Let us consider the meaning of capital with some examples. Suppose, X, the proprietor of a business, started his business with cash of Rs.5,000, stock of goods worth Rs.3,000, furniture worth Rs.2,000 and buildings worth Rs.20,000. In this case, the amount with which the proprietor has started his business, viz., Rs. (cash of Rs.5,000 plus stock of goods worth Rs.3,000 plus furniture worth Rs.2,000 plus buildings worth Rs.20,000) 30,000 is the capital of the proprietor.
Let us take another example. Suppose, on a given date, the assets of the business stand at Rs.60,000 and it's liabilities stand at Rs.20,000. In this case, the net worth or net assets of the business on the given date, viz., Rs. (the assets of Rs.60,000 minus the liabilities of Rs.20,000) 40,000 is the capital of the proprietor on that date.
From the explanation of the term 'capital', given above, we can derive (i.e., get) the following book-keeping equations:
1. Liabilities + Capital = Assets
2. Assets - Liabilities = Capital
3. Assets - Capital = Liabilities
4. Liabilities - Assets = Deficiency of Capital
Owner's capital or Capital at the commencement of a business refers to the money (i.e., cash) or money's worth (i.e., goods, furniture, buildings, etc.) introduced or invested by the proprietor or owner in the business. In other words, it is the amount (i.e., money or money's worth) with which the proprietor has started his business.
Owner's capital at any other point of time is the net worth or net assets of the business which belong to the owner. In other words, it is the excess of the assets of the business over the liabilities, which belong to the owner. In short, it is the excess of the assets over the liabilities.
Let us consider the meaning of capital with some examples. Suppose, X, the proprietor of a business, started his business with cash of Rs.5,000, stock of goods worth Rs.3,000, furniture worth Rs.2,000 and buildings worth Rs.20,000. In this case, the amount with which the proprietor has started his business, viz., Rs. (cash of Rs.5,000 plus stock of goods worth Rs.3,000 plus furniture worth Rs.2,000 plus buildings worth Rs.20,000) 30,000 is the capital of the proprietor.
Let us take another example. Suppose, on a given date, the assets of the business stand at Rs.60,000 and it's liabilities stand at Rs.20,000. In this case, the net worth or net assets of the business on the given date, viz., Rs. (the assets of Rs.60,000 minus the liabilities of Rs.20,000) 40,000 is the capital of the proprietor on that date.
From the explanation of the term 'capital', given above, we can derive (i.e., get) the following book-keeping equations:
1. Liabilities + Capital = Assets
2. Assets - Liabilities = Capital
3. Assets - Capital = Liabilities
4. Liabilities - Assets = Deficiency of Capital
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