Difference between capital and capital formation


Capital is the amount invested by the owner into the business. It may be in the form of money or assets having monetary value.It is increased, when the owner introduces additional capital and it is decreased when the owner withdraws money or goods from the business for his personal use.

Capital Formation: Capital formation refers to the net additions to the capital stock of a country during the period of an accounting year. It is a measure of the increase in the capital of a country. It refers to the accumulation in the stock of capital stock.
Capital Formation has two components: (a) Fixed Capital Formation (b) Change in Stock.
Higher the capital formation, higher is the production capacity, higher production capacity means higher production and hence higher income and higher growth of a nation.

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