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It represents that much of amount is invested by investors or shareholders in business and which is refundable by business at time of liquidation.

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11y ago

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What does paid in capital account represent?

par value of common and preferred stock+additional paid in capital(amount in excess of par)


Is a working capital current liability?

Working capital is not a current liability; rather, it is a measure of a company's short-term financial health. It is calculated as current assets minus current liabilities. While current liabilities are part of the equation that determines working capital, they themselves represent the obligations a company needs to settle within a year, whereas working capital indicates the liquidity available to meet those obligations.


Is share capital the same as net assets?

No, share capital and net assets are not the same. Share capital refers to the funds raised by a company through the issuance of shares to shareholders, representing ownership in the company. In contrast, net assets are calculated by subtracting total liabilities from total assets, reflecting the overall financial position of the company. While share capital contributes to net assets, they represent different financial concepts.


Why does paid in capital and earned capital need to be kept separate?

Paid in Capital is the amount of investment a shareholder has contributed to the business for use and earned capital is the amount of profit that has been generated by the business itself. It must be separate for investor and shareholder information so that the difference between the two can be clearly stated.


Why capital amount put in liabilities but not in assets?

Capital is recorded in liabilities because it represents the owner's claim on the business's assets after all obligations have been met. This equity capital is a source of financing for the company, reflecting the residual interest of the owners. In contrast, assets represent the resources owned by the business, while liabilities indicate the debts owed to external parties. Therefore, capital is classified under liabilities to show its role in financing the company's operations rather than being an owned resource.