Similarities & Differences Between Capital And Assets

1. Capital is the amount of money invested in the business by Sole Proprietor or Partners in case of partnership business to start it or expand it. The amount invested either a Cash or Goods (Stock or Purchases) while Assets are the probable future economic benefits which are received by the business within one year or for a long period of time.

2. Capital is the internal resource of the business provided by owners of the business while assets are acquired as a results of capital. Any claim against the assets of the business are only due to the internal or external sources.

3. Capital is shown on Liabilities & Equity Side of Balance Sheet while assets are shown on asset side of balance sheet.

4. Capital is used to acquire assets while assets are used in the daily operations of the business and helps in generating profits for the business which is added to the capital of the business.

5. Capital is calculated from Statement of Owner’s Equity and from Accounting Equation while assets are calculated by using Accounting Equation i.e., Assets = Liabilities + Owner’s Equity.

6. The normal, usual or favourable balance of capital  is credit while assets have normal balance on debit side according to the Rules of Debit and Credit.

You Can Also Study, “Similarities & Differences Between Capital And Liabilities”

Relationship Similarities Between Capital And Assets

1. Both are helpful in the success of the business as the business needs resources to generate Revenues while capital is needed to start, run or grow the business.

2. Both capital are plus for the business upto a limit as assets can be used to generate revenue by purchasing goods for cash, paying Liabilities, etc. Also capital is used to acquire assets and provide funds for future investment of the business. Here limit means that if we have a balance between assets and equity as too much assets can harm the business. For instance if we have no Cash Account enough in hand, then it affects Working Capital of the business while too much capital also prevents the business to grow as we have no enough assets to used in the business such we have no proper equipment, latest computers & technology to operate the business due to heavy investment in the expanding business rather than these are used for current business’assets.

3. Both are calculated from Accounting Equation.

4. Both have balances and shown on the balance sheet, so these are called Permanent Accounts.