A business owner’s capital account is sometimes referred to as the owner’s equity account, and it refers to those assets which can be accumulated by sole proprietors, partnerships, and LLC companies.
Additions and Subtractions to a Capital Account
The account can be increased by contributions from the owner, either at the outset of a new business or later on when the business is in operation. At the end of each fiscal year, the account will be increased or decreased as a reflection of an individual owner’s share of a business’s net income or loss. The account will also be decreased by any amounts withdrawn by the owner for personal usage.
Types of Contributions
Any contribution made to a capital account will increase the owner’s equity share of the business. The kinds of assets which are contributed to a capital account include computer equipment, vehicles, and other machinery or equipment necessary for operating the business. Whenever assets are contributed to a capital account they must be valued, so that everyone is clear on the precise amount of value added to a capital account.
Importance of Capital Accounts
Banks will always check to see whether or not you have invested in your own business because if you haven’t made any personal investment, you might easily walk away from the business and leave the bank responsible. Whenever you’re starting a new business, you need to invest in your capital account so the business has money for daily operations. In a business structure like a limited liability corporation, it’s important to record all contributions to a capital account, so that you can’t lose more money than you put into the business.
In need of business capital?
Most businesses find at some point that an infusion of capital is necessary so they can maintain daily operations or so they can achieve business growth. Whatever your real needs are, we may be able to help at Avery James, so contact us to discuss some options for acquiring business capital.