What is capital in accounting?

When an owner invests money or equipment in the business, rather than lending it, its assets increase and so does the owner's capital. In a sole trader's or partnership's books, each owner's capital account shows what they have contributed, plus their share of the profits, less their drawings and any share of losses. A company shows the amount its shareholders have paid in for shares as share capital, on a separate line from its retained profits.

Capital is not the same as borrowed money. A loan from a bank or another lender has to be repaid, so it is a liability. A loan from an owner to their company is also a liability, not capital, even though the money came from the owner. Because a deposit from an owner could be either, record what was agreed when the money goes in, and ask your accountant which account fits the arrangement.

The word also turns up in phrases that mean something different. Working capital measures short-term resources, current assets minus current liabilities, not what the owners invested. A capital purchase is the purchase of something that lasts, such as equipment or a vehicle, and how it is treated in the accounts is a question for your accountant.