4 ms·

shouldn't the cash be listed as capital instead of asset?

by rubberstamp 10y ago

tantalor 10y ago
Capital is what you owe your investors, eg "startup capital". Sometimes this is called equity.
- ghaff 10y ago
  That may well be true in some startup contexts but, more generally, capital (more typically called equity) is effectively whatever is left over after you subtract your liabilities (accounts payables, short- and long-term debt, etc.) from your assets. This number shows up on the same side of the balance sheet as liabilities. A balance sheet doesn't really speak to who might have claims to ownership of the company under what terms and the dollar amount of equity on the balance sheet doesn't imply that investors are owed that specific dollar amount.
geoka9 10y ago
Capital is a liability (something you owe to investors). Cash is an asset. When you receive capital in the form of cash, you debit your assets (cash) and credit your liabilities for the same amount (capital). It's "double-entry" accounting, total debits should equal total credits for every entry so that it balances out.
0x0 10y ago
So the basic equation is "assets = capital + liabilities". Capital+liabilities explain how your assets are "covered". Either you owe someone for the assets (liabilities), or you own the assets yourself (capital). Sometimes it's easier to think of this as "assets - liabilities = capital". I.e. whatever is left after considering what you owe, you own. If you have some cash (an asset), then you need to also list it either as a liability or capital, simply because you must always be able to answer "where did this cash from? did we borrow it (liability), or do we own it (capital)?"
- rubberstamp 10y ago
  Thanks for explaining it well. I was caught up in the parent post's example and tried to equate it with the equation given in it. How would the parent's example look like in balance sheet? I looked at small business example given in wikipedia, but failed at writing down parents example into assets and liabilities balance sheet. (https://en.wikipedia.org/wiki/Balance_sheet https://en.wikipedia.org/wiki/Balance_sheet).

shouldn't the cash be listed as capital instead of asset?

tantalor 10y ago

Capital is what you owe your investors, eg "startup capital". Sometimes this is called equity.

ghaff 10y ago
That may well be true in some startup contexts but, more generally, capital (more typically called equity) is effectively whatever is left over after you subtract your liabilities (accounts payables, short- and long-term debt, etc.) from your assets. This number shows up on the same side of the balance sheet as liabilities. A balance sheet doesn't really speak to who might have claims to ownership of the company under what terms and the dollar amount of equity on the balance sheet doesn't imply that investors are owed that specific dollar amount.

geoka9 10y ago

Capital is a liability (something you owe to investors). Cash is an asset. When you receive capital in the form of cash, you debit your assets (cash) and credit your liabilities for the same amount (capital). It's "double-entry" accounting, total debits should equal total credits for every entry so that it balances out.

0x0 10y ago

So the basic equation is "assets = capital + liabilities". Capital+liabilities explain how your assets are "covered". Either you owe someone for the assets (liabilities), or you own the assets yourself (capital). Sometimes it's easier to think of this as "assets - liabilities = capital". I.e. whatever is left after considering what you owe, you own. If you have some cash (an asset), then you need to also list it either as a liability or capital, simply because you must always be able to answer "where did this cash from? did we borrow it (liability), or do we own it (capital)?"

rubberstamp 10y ago
Thanks for explaining it well. I was caught up in the parent post's example and tried to equate it with the equation given in it. How would the parent's example look like in balance sheet? I looked at small business example given in wikipedia, but failed at writing down parents example into assets and liabilities balance sheet. (https://en.wikipedia.org/wiki/Balance_sheet https://en.wikipedia.org/wiki/Balance_sheet).