Capital as a Liability

Capital is an essential component of every business, and it represents the amount of money invested by the owner(s) or shareholders. Capital can be used to finance the operations of the company, purchase assets, and pay for expenses. However, capital is also considered a liability of the company.

Internal Liability

Internal liability refers to the amount of money that the company owes to its owners or shareholders. When the owners or shareholders invest money into the company, it increases the company's capital. The company is then responsible for repaying the owners or shareholders the initial investment, plus any additional profits or dividends earned. Therefore, the capital invested by the owners or shareholders is considered an internal liability of the company.

External Liability

External liability refers to the amount of money that the company owes to external parties, such as creditors or lenders. When a company borrows money from a bank or other financial institution, it creates an external liability. The company is then responsible for repaying the loan, plus any interest or fees incurred. In some cases, a company may issue bonds or other securities to raise capital, creating an external liability to the investors who purchase the securities.

Internal and External Liability

Capital can be both an internal and external liability of the company. When the owners or shareholders invest money into the company, it increases the internal liability. However, if the company also borrows money from external sources, such as banks or investors, it creates an external liability.

In conclusion, capital is an essential component of every business, but it is also considered a liability. Capital can be an internal liability when the owners or shareholders invest money into the company, and it can be an external liability when the company borrows money from external sources.

It is an internal liability