What does capital refer to in a business?

Capital in a business context primarily refers to the amount the owner has invested into the business. This investment is critical because it represents the funds that the owner has contributed to start and maintain operations, comprising both financial resources and possibly any physical assets. It forms the foundation for the business's ability to generate revenue and sustain growth.

This owner’s investment can take various forms, such as cash contributions, equipment, or property, and these contributions are essential in establishing the business's financial structure. The capital invested may also provide a buffer against losses and represents the owner’s equity within the company.

In contrast, while debt obligations relate to money borrowed by the business to finance operations or other expenditures, it is not considered capital, as it represents liability rather than ownership equity. Income generated by the business is the revenue created through operations, which is different from capital as it does not reflect the owner’s investment. Total assets held by the business encompass everything the business owns, including current and fixed assets, but capital specifically pertains to the owner's investment, distinguishing it from total assets which may also include obligations and liabilities.