What is real capital

Real capital is capital in physical objects, in the form of assets. Physical capital means capital in concrete things like property, buildings, vans, machinery, and the like. However, it does not include all physical things in a company such as inventory. This is because inventory is an asset that is not constant, as you sell and replenish it.

Real capital is, in other words, the large physical things that make up the total capital of a company. In addition to real capital, we divide capital into financial capital.

Real capital is not as liquid as financial capital

Real capital is considered to be less liquid than financial capital because it is more difficult to convert real capital into actual money quickly. Liquidity describes the ability of your company to pay. This is similar to when you as an individual sell your house.

You have the actual value, but it takes a little longer to convert it into actual money if you need it to pay for something else.

In order for your company to have better liquidity, it is wise to have financial capital in addition to real capital. If a situation arises where you need money to pay for something, your company is then considered more liquid. Read more about liquidity and how you can improve it for your company.

Where should real capital be in the accounting?

Real capital is considered an asset and should therefore be recorded on an asset account in your accounting. Asset accounts are accounts that start with the number 1. Assets are recorded with a positive value because they are things you own. Liability accounts, which are accounts that start with 2, are recorded with a negative value.

The sum of assets on one side and the sum of liabilities on the other side should be equal and balance out so that you have balance in the accounting.