Capital is a fundamental concept in finance and economics. It represents the funds or other financial assets that are used by a business to generate income. Companies require capital to acquire assets, such as equipment, buildings, or raw materials, and to support their ongoing operations. Businesses finance capital through multiple means: it could come from internal profits (retained earnings) or external sources such as investors' equity and loans.

For instance, a company might use its capital to purchase necessary machinery for production, thereby increasing its production capacity and revenue potential. Additionally, effective capital management is crucial for ensuring liquidity and sustaining profitability. In the context of preparation of month-end financial reports, recognizing and distinguishing capital utilization can ensure accurate accounting treatment.

Overall, capital constitutes an essential element of a business’s structure, impacting its ability to undertake new projects, improve operational efficiency, or expand into new markets.