A capital account is an ownership account which a sole proprietor may have, or which partners may share in the business. This capital account includes all the cash and other assets owned by a business, for instance, equipment, buildings, land, inventory, or accounts receivable. In most cases, capital is also extended to include the investment an owner has made in the business or the accumulated wealth which has accrued to the business since its founding. To be sure of which assets can be included in a capital account, it would be helpful to secure the business advice of a knowledgeable accountant.

Contributions and Subtractions from a Capital Account

Owner contributions can add to a capital account, and these can be either contribution supplied at startup time or those which are incorporated at a later date, and which are decided upon by all the owners of the company. At the end of any fiscal year, this account can be added to or subtracted from, so as to precisely identify each individual owner’s share of the business’ net loss or net income. Sound business advice recognizes that any distributions which are taken out by the business owners for personal use should be subtracted from the working capital account.

Types of Contributions

As you might expect, any contribution made to this type of account must be considered capital in some form, such as money or property. Any of these contributions will increase the equity interest that a given owner would have in the account. As an example, the startup money put into a capital account is a capital contribution, and that is reflected as an increase in that particular owner’s account interest.

Other types of contributions might include equipment, vehicles, or even computers, but whatever they are, they need to be valued at the time of the contribution, so a specific dollar amount can be attached to the capital contribution. Although there are restrictions on how much money can be contributed or subtracted from a capital account, such transactions can be made throughout the life of the capital account, and will always impact the balance of that particular owner’s capital interest.

Looking to open a capital account? 

If you’ve been thinking about opening a capital account, our financial specialists may be able to provide the business advice which can assist you. Contact us at Prime Wealth Development to discuss some of the opportunities which may be available to you.