Capital Account

Examples of Capital Account in the following topics:

• Double-Entry Bookkeeping

  • In the double-entry accounting system, each accounting entry records related pairs of financial transactions for asset, liability, income, expense, or capital accounts.
  • The accounting entries are recorded in the "Books of Accounts".
  • Real accounts are assets.
  • Under this approach, transactions are recorded based on the accounting equation, i.e., Assets = Liabilities + Capital.
  • Capital account: Credit increases in capital and debit decreases in capital

• Capital Expenditures

  • Whether a particular cost is a CAPEX or not depends on many factors, such as accounting rules, tax laws, and materiality.
  • The following capital expenditures are capitalized:
  • An ongoing question for the accounting of any company is whether certain expenses should be capitalized.
  • Capitalized expenditures show up on the balance sheet.
  • Capitalized interest, if applicable, is also spread out over the life of the asset.The counterpart of capital expenditure is operational expenditure ("OpEx").

• Owners' Equity

  • In an accounting context, shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital or similar terms) represents the remaining interest in assets of a company, spread among individual shareholders of common or preferred stock.
  • Businesses can be considered, for accounting purposes, sums of liabilities and assets.
  • Ownership equity is also known as risk capital or liable capital.
  • In financial accounting, equity capital is the owners' interest on the assets of the enterprise after deducting all its liabilities.
  • Accounts listed under ownership equity include (for example):

• The Imperative of Liquidity

  • If I have capital, I can spend it.
  • Cash flows must take into account not only amounts of capital, but the time value and availability of said capital.
  • Capital A has the majority of their money wrapped up in inventory (i.e. holding products for sale) which they expect to sell within 4 weeks, while Company C has their capital in a savings account.
  • Business managers and accountants, when considering their investment options, should keep liquidity in mind at all times.
  • The decision of how much cash to invest, and where to invest it, is therefore a key consideration when balancing accounts for an organization.

• Trade Credit or Accounts Payable

  • Trade credit is the largest use of capital for a majority of B2B sellers; Accounts Payable is money owed by a firm to its suppliers.
  • Trade credit is the largest use of capital for a majority of business to business (B2B) sellers in the United States and is a critical source of capital for a majority of all businesses.
  • Trade credit for Wal-Mart is eight times the amount of capital invested by shareholders.
  • In a business, there is usually a much broader range of suppliers to pay, and accountants or bookkeepers usually use accounting software to track the flow of money into this liability account when they receive invoices and out of it when they make payments.
  • Accounts Payable (also known as Creditors) is money owed by a business to its suppliers.

• Working capital analyses

  • Quoting from the website Entrepreneur.com, "the operating cycle analyzes the accounts receivable, inventory and accounts payable cycles in terms of days.
  • In other words, accounts receivable are analyzed by the average number of days it takes to collect an account.
  • "Most businesses cannot finance the operating cycle (accounts receivable days + inventory days) with accounts payable financing alone.
  • Consequently, working capital financing is needed.
  • This creates a need for working capital to fund the resulting inventory and accounts receivable buildup".

• Equity Finance

  • The equity, or capital stock (or stock) of a business entity represents the original capital paid into or invested in the business by its founders.
  • The par value is the minimum amount of money that a business may issue and sell shares for in many jurisdictions, and it is the value represented as capital in the accounting of the business.
  • Firms need to acquire capital from others to operate and grow.
  • From a firm's perspective, they must pay for the capital it obtains from others, which is called its cost of capital.
  • If an investment's risk increases, capital providers demand higher returns or they will place their capital elsewhere.

• Consumers of Accounting Information

  • Early accounts served mainly to assist the memory of the businessperson, and the audience for the account was the proprietor or record keeper alone.
  • Cruder forms of accounting were inadequate for the problems created by a business entity involving multiple investors, so double-entry bookkeeping first emerged in northern Italy in the fourteenth century, where trading ventures began to require more capital than a single individual was able to invest.
  • This development resulted in a split of accounting systems for internal (i.e., management accounting) and external (i.e., financial accounting) purposes and, subsequently, also in accounting and disclosure regulations and a growing need for independent attestation of external accounts by auditors.
  • Because these users have different needs, the presentation of financial accounts is very structured and subject to many more rules than management accounting.
  • The body of rules that governs financial accounting in a given jurisdiction is the Generally Accepted Accounting Principles, or GAAP.

• Usage of Accounting Information

  • As a result, double-entry bookkeeping first emerged in northern Italy in the 14th century, where trading ventures began to require more capital than a single individual was able to invest.
  • This development resulted in the division of accounting systems for internal (i.e. management accounting) and external (i.e. financial accounting) purposes.
  • Accounting that concentrates on reporting to people inside the business entity is called management accounting.
  • Accounting that provides information to people outside the business entity is called financial accounting.
  • Explain the history of accounting and how accounting information is useful

• Basic types of accounts

  • The six basic types of accounts used in a typical accounting system, according to Wikipedia are:
  • Equity accounts: represent the residual equity of a business (after deducting from assets all the liabilities).In the case of a start-up company totally financed by the founder, it is often called owner's equity and represents the capital provided by the owner.If the company is a corporation and stock has been issued to the owner and to others, it is often called stockholders' equity.
  • Typically, accounts in a chart of accounts each have an account number.
  • In the same way, an account number in a chart of accounts uniquely identifies an account and is easier to use in a computerized general accounting system.
  • The next step is to decide the breakdown of accounts you need so that you set up an account for the detailed information you need for each account type.