Deliver Credibility, Accuracy, Practical Value
Building the Business Case
Solution Matrix Ltd®

Capital Stock, Real Capital, Capital Goods
Explaining Definitions and Meaning in Economics and Accounting

 

In accounting, term capital stock refers to the value received when the company initially issues preferred and common stock shares to the public.

The term capital stock may refer to company stock share ownership, or to production assets of an economy.

What is Capital Stock in Economics?

In economics the term capital stock is approximatley interchangeble with the terms capital goods, real capital, or capital assets. By any of these names, capital stock items are already-produced, durable goods or any non-financial asset that is used in production of goods or services.

"Capital" entered English usage in mid sixteenth centruy, from origins in Latin Languages:

The first known use of the word capital is in early Middle English, in which it was used as an adjective meaning "of or relating to the head." It derives from the Latin adjective capitalis, of the same meaning, which is based on the Latin name for "head," caput. The word was originally used to indicate something affecting the head, as in "a capital bruise" or "a capital wound."

Injuries to the head can be serious and even fatal; by extension, capital came to describe people or things threatening the loss of life ...

—Merriam-Webster1

Adam Smith's Wealth of Nations2 (1776) receives credit for imparting an economic meaning to "capital." By Smith's definition, capital is stock, while profit refers to realizing the revenue from improvements made to that stock. Smith also viewed capital improvement the preferred objective for the economic and system. Note, however, that Smith called his own ideal economic system "natural liberty," although others later named it "Capitalism."

For more on meaning of capital stock in economics, see the articles

What is Capital Stock in Accounting?

When referring to a company ownership, the term capital stock is simply simply another name for corporate share ownership. When used in this sense, common stock includes all classes of common and preferred shares.

  • Accountants total the firm's company's capital stock as the sum of the firm's common and preferred shares, valued at the prices they were initially sold in a public offering.
  • Total capital stock value appear's on the firm's Balance sheet under Owners Equity as Paid in Capital., as Exhibit 1 (below) shows.

For more on the meaning of capital stock in accounting, see the articles:

Example Balance Sheet With Capital Stock (Contributed Capital)

The Balance Sheet summarizes the value of the firm's Assets, Liabilities, and Equities at one point in time. Companies normally publish the Balance Sheet and other financial statements just after the close of a financial quarter or year.

In Exhibit 1, below, Grand Corporation reports capital stock value (Contributed Capital ) on December 31, 20YY, as $9,439,000.

To locate this entry in the Example Balance Sheet, note first that the section with Contributed Capital (Owner's Equity section) is one of the sheet's three primary components. Note also that regardless of whether the company is in excellent financial health or in poor health, principles of double-entry bookkeeping and accrual accounting ensure that the Balance sheet always balances. "Balance" means that the following equation always holds:

Total Assets = Total Liabilities + Total Owners Equities

The Owners Equities Section appears near the bottom of Exhibit 1. There, Capital Stock (Contributed Capital) includes three components:

  1. Preferred Stock: $3,798,000
  2. Common Stock: $4,184,000
  3. Contributed capital in Excess of Par: $1,457,000

These values together make up Grande Corporation's total capital stock, $9,439,000.

Grande Corporation                                   Figures in $1,000's
Balance Sheet at 31 December 20YY   
ASSETS
Current Assets
   Cash
   Short-term investments
   Accounts Receivable
      Less allowance doubtful accts
      Net accounts receivable
   Notes receivable short-term
   Inventories
      Raw materials
      Work in progress
      Finished goods/merchandise
      Operating & office supplies
            Total Inventories
   Prepaid exp, insurance, def taxes
          Total Current Assets




1,969
   137



    611
1,692
3,664
      19


1,369
  137


1,832
     20





5,986
  265
















9,609
Long-Term Investments and Funds
   Common stock held
   Preferred stock held
   Bonds Held / Sinking funds
   Other Long-Term Investments
          Total Long-Term Investments
    
  493
  184
  364
  419





1,460
Property, Plant & Equipment
   Factory Manufacturing Equipment
      Less accumulated depreciation
      Net factory mfr equipment
   Store Equip / Selling Assets
      Less accumulated depreciation
      Net store/selling equipment
   Computer systems
      Less accumulated depreciation
      Net computer systems
           Total Property, Plant & Equip
 
5,983
 2,782

5,456
 1,292

4,721
 2,370




3,201

4,164


  2,351










9,716
Intangible Assets
   Copyrights
   Trademarks and Patents
   Goodwill
          Total Intangible Assets
    
1,014
108
  100




1,222
Other Assets
                    Total Assets
         68
22,075
LIABILITIES
Current Liabilities
   Accounts payable
   Notes payable, short-term
   Current portion of long-term debt
   Accrued expenses, Interest payable
   Unearned revenues
   Taxes payable Other withholding
          Total Current Liabilities



 1,642
    912
    349
     146
     274
    141








3,464
Long-Term Liabilities
   Bank notes payable
   Bonds payable, other LT liabilities
          Total Long-Term Liabilities
                    Total Liabilities
     
912
 4,562



 5,474
8938
OWNERS EQUITY
Contributed Capital
   Preferred stock
   Common stock
   Contributed capital excess of par
          Total Contributed Capital

Retained Earnings
          Total Owners Equity


3,798
4,184
 1,457





9,439

 3,698








13,137
          Total Liabilities and Equities
    22,075
 

Exhibit 1.Complete Balance Sheet reporting capital stock (Contributed capital) value of $9,439,000.


 
 

Share