CAPITAL: Money (cash) or Money's worth (means goods, furniture, land and building, premises, computers, motor vehicles, etc) invested by businessman/owner into the business to start business, is known as Capital.
Capital can be needed any time in the business, this is known as Additional capital.
Business is started with Some assets such as cash, goods, furniture, land and building, premises, computers, motor vehicles, etc and liabilities such as loan from bank, loan from relatives, supplier means creditors who supplied goods on credit, etc. Difference between value of assets invested in the business and liabilities is called Capital.
Thus, Capital = Assets - Liabilities.
Capital is permanent liability of business, and Capital represents owner's fund in business.
Capital can be needed any time in the business, this is known as Additional capital.
Business is started with Some assets such as cash, goods, furniture, land and building, premises, computers, motor vehicles, etc and liabilities such as loan from bank, loan from relatives, supplier means creditors who supplied goods on credit, etc. Difference between value of assets invested in the business and liabilities is called Capital.
Thus, Capital = Assets - Liabilities.
Capital is permanent liability of business, and Capital represents owner's fund in business.
E.g. Prakash’s total Assets in the business are Rs 1,50,000/- and total liabilities
amounted Rs 1,00,000/- Thus, his capital is Rs 50,000/-. i.e.[Rs 1,50,000 - Rs 1,00,000]
DRAWINGS: As owner invest money into business, in the same way when he needs money or some goods or assets (which is not used in the business), he withdraws the same from business for personal use/domestic use.
Money or money's worth is withdrawn from business by the businessman for personal use, then it is known as Drawings.
E.g.:
1. Paid daughter's school fees.
2. Sarees are taken from business for marriage of son.
3. cash withdrew for domestic purpose.
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