Similarities & Differences Between Capital And Liabilities

Capital is the amount invested in the business by a sole trader or sole proprietors, or in case of partnership, in his business to start a new business to grow the already established business while Liabilities are the obligations payable by the business to outsiders of the business.

2. Capital is related to internal sources of the business, so it is called internal liabilities and it is claims against the rights (Assets) of the business from the owners of the business while liabilities are the external sources of the business and hence called External Liabilities. These are the claims against the assets of the business from outsiders such as Suppliers (Accounts Payable / Creditors).

You Can Also Read Out, "Difference Between Liabilities And Owner's Equity"

3. Liabilities may be Current, Long-term or Deferred but capital is not specified. It all depends upon the sole owners which amount to invest to start or grow the business.

Similarities Between Capital And Liabilities

1. Both are important to provide resources (assets) to the business in order to run the business smoothly on daily basis.

2. According to the Accounting Equation, assets are equal to Liabilities plus Owner’s Equity. Mathematically, we can write:

Assets = Liabilities + Owner’s Equity

and hence without any one of these i.e., liability or owner’s equity, the accounting equation can not be completed