Capital
What is capital?
Capital is what the business owes its owner: the money the owner put in, plus any profit left in the business.
Profit for the year adds to capital. Drawings and a loss reduce it.
In the books a capital account goes up on the credit side.
Example
An owner starts the year with capital of £15,000.00. The business makes a profit of £9,000.00 and the owner takes drawings of £6,000.00. Closing capital is £18,000.00.
Why it matters
Capital always equals assets less liabilities. That is the check on a finished statement of financial position.
Practise it
Practise it nowWhat a business has and owes
Ledger Drill is practice, not tax or accounting advice. If this looks wrong, tell us at [email protected].