What is a Capital Account?

​No act of kindness, no matter how small, is ever wasted." - Aesop

As a small business owner you will be expected to setup your accounting general ledger accounts based on the activities of your business.  In accounting and bookkeeping, a capital account is one of the general ledger accounts used to record 1) the amounts that were paid in to the company by an investor, and 2) the cumulative amount of the company's earnings minus the cumulative distributions to the owners. The balances of the capital accounts are reported in the owner's equity, partners' equity, or stockholders' equity section of the balance sheet.

In a sole proprietorship (owned by Search for Me, LLC) the capital accounts include:

• Search for Me, Capital. This account begins with Search's original investment and is increased for each year's earnings minus each year's withdrawals by Search.


• Search for Me, Drawing. This account is a contra account because it will have a debit balance equal to the amount of business assets that Search has withdrawn during the current accounting year for her personal use. At the end of each accounting year, Search's drawing account is closed by transferring its debit balance to the account Search for Me, Capital.

Source:  AccountingCoach