Cause of Changes in Capital

The capital in a business does not remain intact but changes over time due to the following factors: additional investments, profits drawings or losses.
1) Additional investments (I)-occurs when the owner of the business brings in his personal cash or assets into the business for business use. Addition investment increase the capital of the business.
2) Profits (P) -defined as the excess revenue obtained after paying costs of a business increase the level of capital and assets of the business.
3) Drawings (D)-refer to the money or other assets taken from the business by the owner for personal use. Drawings reduce the of business capital.
4) Losses ( l )–occurs when the cost of goods or services are greater than their sale price losses reduce the level of business capital.