What is the difference between capital and financial capital which is a factor of production
What is Capital?Capital as a financial term as a wide range of meaning. It can mean the financial strength of an individual or business, money used to start a business, money invested for profits or a factor for producing goods and services. However, in this context, capital refers to financial value, assets and tangible factors involved in production of goods and services. It describes assets that are essential for business performance and production of goods. Capital includes financial value such as funds, equipment, machinery, facilities (storage or production facilities) that an organization needs in order to start a business. Show Back to:BUSINESS & PERSONAL FINANCE Back to:ECONOMIC ANALYSIS & MONETARY POLICY How is Capital Used?Money is different from capital, although many people confuse money with capital. The major distinguishing factor is that money is used for purchase of goods at secure services (usually for immediate needs) while capital is used to generate more wealth, through production of goods and services, or through investment. Capital refers to elements responsible for the creation of ongoing goods and continuous services. Capital comprises of other factors aside from funds or financial value in terms of money. While money is strictly about a physical currency or denomination, capital is beyond that. Capital includes equipment, facilities, softwares, automobiles, buildings and other tangible factors. Capital can be used in production of goods and services and also to create wealth. Products of capital, whether goods or services, must be ongoing, that is, they must continually be offered to generate wealth for a business. The ability to create value and render an ongoing service is a must-have quality for capital. Capital can be transferred from one business to another in exchange for fund. Businesses use capital in starting off their business, to create value and provide ongoing goods and services. Aside from financial values which are funds held in deposit accounts, tangible assets also make up a capital. However, tangible assets such as machines and equipments can depreciate in value. However, this depreciation does not pose any threat to the business as it is useful for tax deductions. Types of CapitalThere are different types of capital and each has distinctive qualities. The major types of capital are;
Additional Paid-In CapitalAdditional Paid-In Capital is the value of share capital over or above its stated par value (face value). It is applicable to common shares and preferred shares. Oftentimes additional paid-in capital occurs when an issuing company offers a new share at an amount which can be reduced when a company repurchases its shares. When investors or businesses buy directly from the issuing company, the amount paid is often additional paid-in capital. Capital vs. MoneyAlthough, people often use capital and money as interchangeable terms, both do not have exact meanings. While money is used in purchase of goods and services, capital is used as a wide term. Capital refers to any factor of a company; tangible assets such as equipment, facilities, machinery, among others and financial value in terms of funds that are responsible for the operations and growth of the company. Businesses or individuals render services and goods in exchange for money but capital is the combination of factors used in the production of goods and services. Also, while money serve immediate purposes, capital can be used to generate income or used for investment purposes. Related Topics
What is the difference between capital and financial capital?Capital refers to anything that can be used for productive purposes by a firm or individual. Economic or financial capital entails monetary funds and investments like equity, debt, or real estate.
What are the 3 factors of production capital?Define the three factors of production—labor, capital, and natural resources.
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