Capital

We have seen previous in this section that the fundamental accounting equality states as:

Assets = liabilities + owners equity.

From the illustration of balance sheet we can simply establish this. Notice Ms. Naina's balance sheet as:

Total assets                           Rs. 1,00,00,000

Total liabilities                        Rs.   60,00,000

Owner's equity                       Rs.   40,00,000

We also identify that the owner's equity contains the contributed capital and the retained earnings of the firm. Thus, capital is that part of owner's equity that is contributed through the owners. If Ms. Naina were a particular proprietorship business, the owner's equity will be reflected directly as given below:

Capital                                         Rs 40,00,000

Whether 'M/s. Naina' were a partnership firm along with 4 partners as W, X, Y and Z all sharing similarly, the capital would be shown as:

Capital Partner W                                           Rs. 10,00,000

Partner X                                                        Rs. 10,00,000

Partner Y                                                        Rs. 10,00,000

Partner Z                                                        Rs. 10,00,000

Total                                                               Rs. 40,00,000