Is contributed capital a noncurrent asset or a current asset, and is it a debit or credit? (2024)

FAQs

Is contributed capital a noncurrent asset or a current asset, and is it a debit or credit? ›

Contributed capital, also referred to as paid-in capital, is neither a non-current asset nor a current asset; it is part of the company's shareholder's equity. It represents funds a firm uses to run its business operations, emanating from its shareholders.

Contributed capital is not an asset. It is recorded under shareholders' equity on the balance sheet, representing the total funds shareholders have invested in exchange for ownership shares.

Definition of Contributed Capital

The transaction will be recorded with a debit to the Cash account and a credit to one or two contributed capital accounts such as Common Stock (and perhaps Paid-in Capital in Excess of Par Value).

Contributed capital is an asset because it represents the resources that a company has received from its shareholders. The amount of contributed capital can be found on a company's balance sheet.

Current assets are those that you can convert into cash within one year, such as short-term investments and accounts receivable. Non-current assets are longer-term assets with a full value that you cannot recognize until after one year, such as property and machinery.

Owner equity is, therefore, a basic measure of the financial strength of a business. Traditionally, owner equity is divided into Contributed Capital and Retained Earnings. Contributed capital represents investments by the owner(s), or by stockholders if the business is a corporation.

Cash or assets given to an entity in exchange for an equity interest or as part of an ongoing obligation, or capital commitment, to fund the entity.

Key Takeaways

Noncurrent assets are a company's long-term investments that are not easily converted to cash or are not expected to become cash within an accounting year. Also known as long-term assets, their costs are allocated over the number of years the asset is used and appear on a company's balance sheet.

Paid-up capital, also called paid-in capital or contributed capital, is arrived at from two funding sources: the par value of stock and excess capital. Each share of stock is issued with a base price called its par. Typically, this value is quite low, often less than $1.

How do you record contributed capital? ›

Contributed capital gets reported on the balance sheet of a company in the shareholder's equity section. This is often split into two separate accounts, which include the common stock account and the additional paid-in capital account.

Key Takeaways

Capital assets are assets that are used in a company's business operations to generate revenue over the course of more than one year. They are often recorded as an asset on the balance sheet and expensed over the useful life of the asset through a process called depreciation.

Accounts receivable can be considered a “current asset” because it's usually converted to cash within one year. When a receivable is converted into cash after more than one year, instead of being recorded as a current asset, it's recorded as a long-term asset.

Capital assets are typically long-term assets that a company expects to use for more than one year, and they are recorded on the balance sheet as non-current assets, often under the property, plant and equipment line (PP&E).

Non-Capital Asset – An asset that does not meet the criteria for a capital asset or is considered to be controlled property. Non-capital assets have a useful life of more than one year and an acquisition cost of at least $1,000, but less than $5,000 per unit.

Current assets include cash, accounts receivable and inventory. Current liabilities include accounts payable, taxes, wages and interest owed. Working capital is a financial metric calculated as the difference between current assets and current liabilities.

Capital employed is calculated by subtracting current liabilities from total assets (total assets are the net value of all fixed assets plus all capital investments and current assets). You can also find capital employed by adding noncurrent liabilities to owners' equity.

Non-current liabilities include things such as deferred tax liabilities, certain kinds of credit lines, capital and long-term leases, and bank loans.

CapEx is a capital expenditure, sometimes called a capital expense, which is money a company uses to purchase, maintain, or expand fixed assets. These fixed assets are non-current, not liquid, long-term resources the company intends to use for more than a year.