What Is a Capital Contribution in Accounting?

What Is a Capital Contribution in Accounting?

What Is a Capital Contribution in Accounting?

About.com explains that a capital contribution in accounting is a segment of a company's recorded equity. The amount may be contributed using cash, equipment or other fixed assets. A common way for an owner to contribute capital to a company is to buy stocks.

About.com notes that capital contributions are very valuable to a company because it shows that the company has a cash value. Banks look favorably on capital contributions when considering a business loan. In a limited liability corporation, a company owner's liability extends only as far as the owner's capital contributions.

Capital contributions are commonly known as paid-in capital. AccountingCoach.com notes that when contributing capital via a stock purchase, two accounting recordings must be made, one that records the amount the stock was purchased for and one that records the common or par value of the stock.