Definition of Capital in General And Types of Capital

Understanding Capital in General

What is capital? Capital is a collection of money or goods that are used as a basis for carrying out a job. In English, capital is called capital , that is, goods which are produced by nature or humans to help produce other goods that are needed by humans for the purpose of obtaining profits.

Capital is a very vital thing in a business or company. Without capital business cannot run as it should. Starting from large businesses and small businesses also need capital to run their business.

In essence, capital is an asset (read: definition of assets) the main company to run a business where generally in the form of funds or money. With money the business can run smoothly to support the production process to marketing.

This article will completely discuss the notion of capital and its types.

Understanding of Capital According to Experts

Some experts in the field of economics have explained the definition of capital, including:

1. Lawrence J. Gitman

According to Lawrence J. Gitman, the notion of capital is a form of loan within a certain period of time owned by the company, or everything that is on the right side of the company’s balance sheet other than current obligations.

2. Bambang Riyanto

According to Bambang Riyanto, the notion of capital is the product of production which is reused for further production. In its development, then capital is emphasized in value, purchasing power, or even the power to use what is in capital goods.

3. Drs. Moekijat

According to Moekijat, the definition of capital is all things owned by the company, including cash, credit, the right to make, and sell things (in the form of patents), machinery, and property.

However, often the term capital is used to describe total ownership rights which consist of the amount planted, the surplus, and all profits not shared.

4. Mayo

According to Mayo, the notion of capital is a variety of debt instruments to utilize investor funds that purchase debt securities. There are two types of shares; preferred shares and ordinary shares.

5. Prof. A. Bakker

According to Prof. Bakker, the definition of capital is concrete goods that still exist in the corporate household that are in the debit section of the balance sheet, as well as in the form of purchasing power or exchange rates of goods recorded in the balance sheet of the credit section.

6. Professor Polak

According to Professor Polak, the notion of capital is the power possessed by individuals / organizations to use capital goods (in the credit balance). What is meant by capital goods are goods in the company that have not been used.

7. Munawir

According to Munawir, capital is the company’s wealth that can come from internal or external including wealth generated from the production process of a company.

8. Professor Meij

The definition of capital according to Professor Meij is the collectivity of capital goods (all existing goods, in the household of the company in its productive function to form income) contained in the balance sheet next to the debit (read: Understanding Debit and Credit), and wealth is power buy contained in capital goods in the balance sheet next to credit.

9. Big Indonesian Dictionary (KBBI)

The definition of capital according to KBBI is money used as a principal (parent) for trading; property (money, goods) that can be used to produce something that can increase wealth and so on.

Types of Capital

The types of capital can be divided into three, namely based on sources of capital, based on their form, and based on their functions.

I. Types of Capital Based on Sources of Capital

Capital based on its source can be divided into two, namely internal capital and external capital. The following description is both:

1. Internal Capital

Sources of internal capital is capital obtained from the company itself usually from the sale. Internal capital is difficult to use to develop a business because it is limited and difficult to experience a significant increase.

2. External Capital

External capital sources are capital from outside the company or funds obtained from creditors or from shareholders who can take part in the company. There are limitations to internal capital, so there is a need for external capital that can be obtained from outside and is unlimited.

External capital is generally obtained from bank loans, cooperatives or other sources of capital. External capital can also be obtained from investors who invest their capital in your company.

II. Types of Capital Based on Function

Capital based on its function can be divided into two, namely individual capital and social capital. Here’s an explanation of both:

1. Individual Capital

Type of individual capital is capital that comes from someone who has a function to facilitate various activities and provide profits to their owners. For example: deposits, personal property, shares, and others.

2. Social Capital

The type of social capital is capital owned by the community where the capital provides benefits to the general public in conducting production activities. For example, highways, ports, markets (read: Understanding Market ), and others.

III. Types of Capital Based on Being

The types of capital are also distinguished based on their form, namely concrete capital or active capital and abstract capital or passive capital. Explanation of concrete capital and abstract capital, namely:

1. Concrete Capital (Active Capital)

Concrete capital is active capital, which means it can be seen in tangible or tangible form. Which includes concrete capital such as raw materials, places, machinery, warehouses and other forms of infrastructure.

2. Abstract Capital (Passive Capital)

Abstract capital is the opposite of concrete capital which cannot be seen in plain view. Even so, this capital is also important for the sustainability of the company such as labor skills, copyrights and establishment matters.

Benefits of Capital for Companies

As explained from the definition of capital above, capital is a vital thing that must be owned by the company especially for developing companies. Without capital, businesses will find it difficult to carry out their activities.

Some of the importance of capital is to help produce other goods needed by humans with the aim of obtaining the following benefits:

1. Rent a Place

Not having land to do business means you need a place to rent. The availability of capital is important for matters of renting premises rather than having to buy land that is much more expensive.

2. Provision of Production Materials

Capital is needed to provide production materials including raw materials, supporting equipment and production machinery. In a business that runs a business in the field of product providers, it certainly requires capital to buy production equipment.

3. Worker Salary

To run the company is inseparable from the members of the company in this case employees or labor. So that the availability of capital is needed to provide employee rights such as salaries, benefits and even work safety insurance.

4. Deposits

Capital does not have to be fully allocated for production purposes, but capital must also be in the form of savings. This is to anticipate things that are not desirable such as deficits, lack of operational costs or an increase in market demand.

That is a brief review of the notion of capital, the benefits of capital, sources of capital, and the types that can be a source of information to support your business. May be useful.

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