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Understanding More About Capital

Jul 8th 2015 at 10:18 PM

When we talk about any business there are four important aspects that should be taken into account. First and foremost it must be an economic entity where some economic activities keep taking place on a regular basis. The next important point is that there should be monetary benefit occurring to the stakeholders. Then there must be a time period that must be taken into account while such activities are taking place. Finally there must be a cost principle attached to it. In other words there must be some spending which should result in some creation of assets. Assets can be classified in capital assets and current assets. In this article we will have a closer look at what exactly is capital and how one could distinguish from various types of capital.

What Exactly Is Capital

Capital in pure and simple accounting terms is nothing but the first infusion of cash or kind that is put into the business to give it a start. The infusion could be in the form of kind too and we need to study this in greater detail to understand more about what capital in real terms is all about. When cash is infused into any business it can be used for various purposes. It could be used for buying the various raw materials that could be needed for making of the end finished products. It could be used for meeting some other expenses which are required for running the business such as investment in offices, furniture and fixtures, warehouse and so on.

Getting To Know More about Real Capital Real Capital

When we talk about quality capital we cannot ignore the importance of real capital. This is what actual capital is all about. It is about buildings, machinery, and other such things that are already in completed stated and have the best of market value without making any changes to it. Stock and shares could also be considered as capital but they cannot be considered capital that is fixed in nature. Further when it comes to valuing of an organization there is hardly any doubt that capital that is real in nature is always sought after much more.

In accounting term real capital appears on the assets side of the balance sheet of a company while financial capital appears on the liabilities side.

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