The amount that is invested in the business by the propreitor is called capital. In other words, capital is the excess of assets over external liablilities. For example, if the total assets of business is $120,000 and the liabilities is $80,000, then the capital on that date would be Rs. 40,000 ($120,000-80,000). Sometimes, it is also called as net worth or owner's equity.
Any property or possession of the business is known as assets. It also refers to the amount due on debtors. Plant, machinery, land, building, cash in hand, cash at bank, bills receivable, debtors, prepaid expenses, accrued income etc. are some of example of assets. The following are further classifications of assets:
- Current Assets
- Fixed Assets
- Tangible Fixed Assets
- Intangible Fixed Assets
Liabilities denote the amount owing to outsiders who are not owners. In other words, the debts that are due by the firm to other parties are collectively known as liabilities. Creditors, bank overdraft, bank loan etc. are some examples of liabilities. Capital introduced by owner is also comes under liability. There are two types of liabilities.
- Long Term Liabilities
- Current Liabilities