Accounting Dictionary

Capital

Capital is the amount of the business that belongs to the owners of a sole proprietorship.

In a related meaning, it is the amount of money plus any debt free equipment, buildings, and other assets that owners can use to run their business.

For example, let’s say the business owns one asset, a building for which they paid $200,000. They did not have $200,000 in cash to buy the building so they paid $20,000 and borrowed $180,000 from the bank. If the building were sold for $200,000 they would have to repay the bank $180,000 which would leave $20,000 in cash for them. The $20,000 is their capital. Most people would say, “I bought a building for $200,000. I own that building.” In reality, that’s not true. You owe the bank $180,000. You have a debt of $180,000. In reality the bank owns $180,000 of the building. You only own $20,000. $20,000 is your capital. People often say, “Do you have enough capital to start a business?” They mean do you own enough equipment and/or have enough money so that you can run a business without going bankrupt?” If you have a $20,000 truck with a $20,000 car note, that’s not capital. If you don’t pay, the bank can repossess the truck. It’s not yours; it’s not capital. The bank has a prior claim to the truck.

Sign Up to Learn More!

Join our mailing list today to get notified of new discount offers, course updates, Roger CPA Review news, and more!

Scroll to Top
Get Your eBook Today!

Fill out this form to have our eBook sent directly to your email address.

Access Until You Pass

The Elite-Unlimited course provides UNLIMITED continuing access to your course materials until you pass the CPA Exam! How does it work? Upon activating your course, you will have an initial 36 months of access. You can then renew your subscription as many times as you need to pass your exams—for FREE. Simply click the “renew” option in your student account and you can continue studying your high-quality course materials without losing any of your data and course progress.

Renewal Instructions

  •   Please purchase a renewal using the "Renew" option from the My Account page
  •   To qualify for renewal pricing, course must be renewed before it expires
  •   All renewals are effective from the current expiration date and cannot be deferred
  •   Test information cannot be reset (deleted) with renewal unless eligibility criteria is met (see Help page)