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What Is Capital? - Definition & Concept

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  • 0:00 Definitions
  • 0:55 Capital on the Balance Sheet
  • 1:20 Examples
  • 1:42 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
Capital is a fundamental concept in business. In this lesson, you'll learn about capital and some related concepts. You'll also have a chance to take a short quiz after the lesson to reinforce your knowledge.

Definitions

Capital can mean different things in the business world. Let's take a look at two of the primary meanings of the term.

Capital is one of the basic factors of production along with land and labor. It is the accumulated assets of a business that can be used to generate income for the business. Capital includes all goods that are made or created by humans and used for producing goods or services. Capital can include physical assets, such as a production plant, or financial assets, such as an investment portfolio. Some treat the knowledge, skills and abilities that employees contribute to the generation of income as human capital.

Capital can also refer to money invested in a business to purchase assets. Businesses can raise capital through owner contributions of cash or property, which are called equity contributions, or through loans, called loan capital.

Capital on the Balance Sheet

Capital is reported as an asset on a company's balance sheet. Most capital is considered a long-term asset, which is an asset that usually takes over a year to convert to cash, as opposed to a short-term asset, which is an asset that can be converted to cash in less than a year. An example of a long-term capital asset is a factory building. While physical capital and financial capital are reported as assets on the balance sheet, human capital is traditionally not included.

Examples

Let's look at some examples of capital:

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