We understand very well what a capital city and capital letter are but capital as in accountancy, what is that? Many people find the terminology of accounting pretty troublesome. Here is a detail description of capital which would help you in the later.
When someone plans to set up a business that holds expertise in whichever field a sum of money is required to get it started. It exists in many forms. Capital is the resource of financing the business in any way. From funding the machinery and tools to taking care of revenues and sale outcomes capital is used by the business. To operate a business, from baby steps to significant decisions, capital proves to be an important asset for the business. All the belongings of the business from an asset as small as a tool, equipment, machinery to as huge and important as cash, vehicles, software, accounts, stock etc. are all counted as capital. Anything, except the raw materials, that aids business is generating revenue and gain financial stability is called capital. In a layman’s terminology, you would call it an investment. In easy terms, yes we can call it an investment. You put money in the infrastructure and framework of your business so technically it works as an investment.
Is money the same as capital? Many businessmen and people related to accounting confuse these two terms; money and capital. It is important to mark the difference between them. They are not the same terms at all. Money holds the capability to purchase anything. All the buying and selling is carried out by using money. However, capital is not concerned with purchases. It is considered as an asset which adds value to your wealth and business. Capital aids in building revenue and earning a profit. In a nutshell, with money, you can buy the property and with capital, you can add value to the services you offer.
Gain and Loss with respect to Capital: After you invest money in business the profit or loss decides the value of capital. If there is a profit, the worth of capital increases. If there is a loss, the worth of capital decreases. For best results and to gain accurate figures always seek out trusted Accountants in your area. Here is a resource for Accountant Carrum Downs we have tried and tested previously.
Example of Capital Gain: You buy machinery for $2000. You do some modifications in it yourself and now sell it for $2500. After you subtract the initial cost from the final cost you get $500. This is a capital gain.
Example of Capital Loss: You buy machinery for $2000. You realize some parts are not very good. You buy new ones at a cost of $500. Now you sell it at $2200 whereas it should be more than $2500. You get a loss of $300.
Accounting is a field that requires attention and presence of mind because every matter is a delicate manner. A slight mistake in the digits, the number of zeroes or the decimals can lead to blunders. Accounting is concerned with some serious risks. Each of them is capable to turn the matters into an unpleasant direction. We will briefly look into the most common risks of accounting.
- Leakage of data: Due to any crisis, your or your employee can leak the most confidential information of your client. This usually happens when you don’t install security software or don’t have firewall upgraded. Many times a careless mistake such as losing your laptop or mistakenly exchanging the data on a public platform can expose your client’s data. Moreover, in case serious competent hacking issues often come to surface. Therefore very strict security issues must be taken when dealing with data and information that costs a fortune to a company. Otherwise, you and your company will have to pay for your one tiny mistake.
- Sued for errors and losses: Although it seems very unfair it is fair. Your clients depend on you for good business consultation and professional suggestion. In the case of giving them a bad idea or wrong suggestion, their business can suffer a huge loss. This would put you in trouble because you were responsible for the advice. Thus, proper communication correct bookkeeping is essential at the time of client consultation.
- Client injury at your office: This one might put you off the edge but this risk really exists. Do you know if your client faces an injury at your office who is supposed to pay all the hospital bills and face the charges? You. Make sure your office is safe and secure enough and there is no as such risk where a client can injure himself. Still, if someone trips over the wires or bumps into a wall or glass door you get to handle everything from the ambulance service to the hospital dues.
- Natural or manmade calamity: Weather, fire, earthquake destruction or any other calamity can cause you a loss of almost everything. You might have hundreds of clients depending on your for their daily progress. When such calamity happens, the insurance company comes in for the rescue.
- Health issues: An accountant is, after all, a human. Constant work can give them a severe backache as well as Carpal Tunnel Syndrome.
Looking for real advice to assist you with your business financial accounting. At Glenn Green, we have started the best Accounting and tax advice news blog for your benefits. We will be talking about some of the latest industry news that you may not have heard of to assist you in running your business or personal finances better. There is a lot of talk about some of the industry-standard best practices and we hope to cover a lot of the misconceptions there is in the industry. So if you love learning and being equipped with the latest news and best practices then be sure to check back here soon and follow along with our posts. Comments and questions most welcome