What Is Capital?
Capital is the financial resources — cash, assets, and funding — that a business uses to operate and grow. In accounting it often refers to the money owners and investors have put into the business, but it broadly covers any wealth deployed to generate more wealth.
What capital is and why it matters
Capital fuels everything a business does — buying equipment, funding inventory, covering payroll until revenue arrives. It comes from two main sources: equity capital (money from owners and investors, which doesn't have to be repaid) and debt capital (borrowed funds that do). How a business is capitalized shapes its risk and flexibility: heavy debt magnifies returns but adds fixed obligations, while equity dilutes ownership but eases cash pressure. The term also appears in specific forms — working capital (short-term liquidity) and capital expenditure (spending on long-term assets) — so context matters.
A worked example
A founder starts a business by investing $100,000 of their own money (equity capital) and taking a $50,000 bank loan (debt capital). The business now has $150,000 in total capital to deploy. It spends $60,000 on equipment (a capital expenditure) and keeps $90,000 as working capital to fund operations. The mix — $100,000 equity to $50,000 debt — describes the company's capital structure.
How firms handle it today
Firms track capital contributions, draws, and loans through equity and liability accounts in the general ledger, reconciling them at close so the balance sheet reflects the true funding picture.
Related terms
- Working capital
- Equity
- Asset
- Liability
- Retained earnings
FAQ
What are the types of capital?
Broadly, equity capital (from owners/investors) and debt capital (borrowed). Working capital and capital expenditure are specific uses of capital.
Is capital the same as money?
Not exactly — capital is wealth (cash or assets) put to work to generate more value, whereas money is one form capital can take.
What is capital structure?
The mix of debt and equity a company uses to finance its assets and operations.