Course Outline
Join PRO

What is a capital account?

Author:
Harold Averkamp, CPA, MBA

Definition of Capital Account

In accounting and bookkeeping, a capital account is a general ledger account that is part of the balance sheet classification:

  • Owner’s equity (in a sole proprietorship)
  • Stockholders’ equity (in a corporation)

Examples of Capital Accounts

The sole proprietorship of J. Lee will include the following capital accounts:

  • J. Lee, Capital, which is increased by J. Lee’s investment into the business plus each accounting period’s net income, and which is decreased by the debit balance in the account J. Lee, Drawing
  • J. Lee, Drawing, which is a temporary account that records the proprietor’s draws during the year. At the end of the year, the account’s debit balance will be closed to owner’s capital account

A corporation will likely have the following capital accounts:

  • Paid-in capital accounts such as Common Stock, Preferred Stock, Paid-in Capital in Excess of Par, which are used to record the amounts received by the corporation when shares of its capital stock were originally issued to investors.
  • The account Retained Earnings which consists of the amount of the corporation’s earnings since the corporation was formed minus the dividends distributed to the stockholders since the corporation was formed.
  • The account Treasury Stock, which has a debit balance representing the amount paid by the corporation to repurchase its own shares of stock which it did not retire.

Other Information on Capital Accounts

The total of the balances in all of the capital accounts must be equal to the reported total of the company’s assets minus its liabilities. Because of the historical cost principle and other accounting principles, the total amount reported in the capital accounts will not indicate a company’s market value.

Join PRO to Track Progress
Must-Watch Video

Advance Your Accounting and Bookkeeping Career

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Certificates of
Achievement

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus