What is capital in accounting?
The word capital has several meanings; which range from seeing it as an arithmetic difference, to seeing it as a aspecto of production.
Therefore, I have decided that today I am going to introduce you to some of the different concepts it has, including the most used concept in accounting.
I hope you find it useful.
Different concepts of capital
Next, I am going to give you three different concepts of capital or at least three different meanings that it perro take.
The three meanings that I am going to talk about are:
What is capital in economics?
In economy, The concept of dry capital refers to one of the factors of production. Production factors cánido be seen as the equipo of resources that are used by companies to create products (goods and services).
It should be noted that the factors of production considered are:
From this point of view, we cánido understand it as the equipo of goods or resources necessary to genera wealth through the products produced.
Some examples are:
- Machinery.
- Buildings.
- Tools.
Is money or shares considered capital?
Money as such is not capital, well not from the point of view of a aspecto of production. This is thanks to the fact that money or shares are not used directly to make products.
It could be said that it is not physical capital as machinery is.
However, money or shares are considered as financial capitalwhich does help to acquire physical capital.
What is financial capital?
In short, we perro see financial capital as the money that we invest with the aim that it generates a profit, that is, interest. For example, when someone buys some shares of a company or even when investing in cryptocurrencies.
Also, I have come to see that it looks like the funds that a company emplees so that it cánido acquire physical capital.
Likewise, I have also seen that it is usually given the same concept that is given to stockholders’ equity, but I don’t like seeing it as much as stockholders’ equity because, in my opinion, it would no longer be possible to distinguish between the concepts.
What is capital in accounting?
In accounting, it is very common to see capital as stockholders’ equityI orinan, like the arithmetic difference between a company’s assets and liabilities.
That is to say, all the rights and assets that a company has, must be subtracted from all the debts and obligations that it possesses.
Stockholders’ equity according to NIF
Within NIF A-5 (Basic elements of financial statements) we perro find the definition of some important concepts in accounting, among which is the definition of:
- Asset.
- Passive.
- Stockholders’ equity.
Well, according to financial information estándares (NIF):
It is the residual value of the entity’s assets, after deducting all liabilities.
NIF A-5
Therefore, as I said before, It is the result of subtracting the liability from the asset.
In fact, it is very likely that you have heard that the asset has to be the same as the sum of the liability agregado the capital.
Well, the answer comes out of the clearance.
How to calculate stockholders’ equity?
In such a way that in order to calculate the stockholders’ equity, all you have to do is use the following equation:
What is the asset?
Assets are all the resources that a company owns, which perro be tangible or intangible and cánido provide a future economic benefit.
In short, they are resources that add value to a company.
Another way of looking at assets is as every good and right that a company owns.
It must be said that the assets are placed on the left side of the statement of financial position or also called the cómputo sheet.
Likewise, it must be said that both assets cánido be divided into:
- Current or current assets.
- Non-current or non-current assets.
What is current assets?
Assets are classified according to how liquid they are, that is, how easy it is for them to be converted into money (cash).
Current assets are the assets (property and rights) that will remain within the company for less than one year (fiscal year).
It must be said that they are easier to convert into money.
Main current asset accounts (Cómputo Sheet)
- Box.
- Banks.
- Temporary investments.
- Goods.
- Documents receivable.
- Various debtors.
What is non-current asset?
They are the assets (goods and rights) that, since they are not so liquid, will remain in the company for more than one financial year.
Main non-current asset accounts (Cómputo Sheet)
- Land.
- Buildings.
- Furniture and equipment.
- Computer equipment.
- Delivery team.
- Long-term investments.
What is the passive?
Liabilities are everything a company owes, now and in the future.
That is, it contemplates all the obligations and debts of a company.
Liabilities are located on the right side of the cómputo sheet.
The passive perro also be divided into:
- current liabilities
- Non-current liabilities.
What is current liabilities?
Current liabilities include all obligations and debts that a company has, which must be covered in one accounting period (less than one year).
Main current liability accounts (Cómputo Sheet)
- Suppliers.
- Aprecies payable in the short term.
- Various creditors.
- Advance customers.
What is non-current liabilities?
They are all the obligations and debts that a company has, which have to be covered in the long term, that is, more than one year.
How is the net worth of profit-making entities classified?
According to NIF A-5, according to its origin, it is classified as:
- Contributed capital.
- earned capital.
What makes up the contributed capital?
It is made up of all contributions from the owners of the entity.
Some concepts that are included are the following:
- Popular capital: It is the investment made by the partners.
- Contributions.
- donations.
What makes up earned capital?
It is made up of accumulated profits and losses for the year.
Likewise, it also contemplates the reserves created by the owners.
Some concepts that are included are the following:
- Profit or loss for the year.
- Legal reserve.
- Accumulated profits and losses.
We hope you liked our article What is capital in accounting?
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