Contributed Capital
Money or assets invested into a business by owners in exchange for equity.
Definition
Contributed capital (or paid-in capital) is the total amount of money and assets that owners have invested in the business in exchange for ownership stakes. For corporations, this includes the par value of stock plus any additional paid-in capital (amounts paid above par value).
Contributed capital is an equity account on the balance sheet. It represents the owners' initial and ongoing investments, distinct from retained earnings (accumulated profits not distributed).
Why It Matters
Contributed capital shows how much owners have invested versus how much the business has generated through operations (retained earnings). High contributed capital relative to retained earnings may indicate a business that requires significant upfront investment or hasn't yet become profitable.
When raising money from investors, contributed capital increases. When owners take distributions, contributed capital typically doesn't change—instead, retained earnings decrease or an owner's draw account is used.
Examples
- 1
Business starts with owner investing $50,000 cash: Debit Cash $50,000, Credit Owner's Capital $50,000.
- 2
Corporation issues 10,000 shares at $1 par value for $10/share: Debit Cash $100,000, Credit Common Stock $10,000, Credit Additional Paid-In Capital $90,000.
- 3
Partner contributes equipment valued at $25,000: Debit Equipment $25,000, Credit Partner's Capital $25,000.
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