Many people consider cash and capital as same which is wrong, it’s like considering Samsung and television as same while in reality Samsung does not produce only television rather it produce many products in the same way capital includes cash but it also include many other things. Let’s look at some of the differences between cash and capital –
- While cash refers to cash in hand and also money lying in the bank account of the company whereas capital is much wider in scope and it refers to difference between total assets and total liabilities.
- Cash can be used to buy many things like land, building, plant, machinery, furniture and so on while capital include all things including cash and bank balance, both of which are considered as current asset.
- While excess cash does not mean that company is making profits (as this excess can be result of company taking debt or other such reason) whereas excess capital is the result of company making profits over a period of time.
- While cash is very liquid in the sense that you can use it for any purpose whenever you want like if the owner of the firm meets with accident then he or she can use the money for the treatment whereas capital is not liquid and it cannot be used for such emergencies (one cannot give land or building to the hospital in lieu of money).
- While cash itself cannot generate any returns (until one deposit it into the bank) and it does not help in creating wealth however capital is used in running and expanding the business which in turn helps in creating wealth for the owners of the company.