What does “capital” refer to in the accounting equation?

In the context of the accounting equation, "capital" specifically refers to the invested funds within a business. This concept encompasses the total amount of financial resources that owners or shareholders have invested into the business, which can include equity such as common stock and retained earnings. Capital is a critical component of the accounting equation, which is expressed as Assets = Liabilities + Capital.

This means that capital represents the residual interest in the assets of the entity after deducting liabilities. Thus, it reflects the owners' claim on the business assets, illustrating how much of the organization is financed by its owners as opposed to creditors. Understanding this relationship helps in assessing the financial structure of a business and evaluating its worth from the owner's perspective.

Other options like liabilities and net assets do not specifically denote the owners' investments, while 'assets minus liabilities' represents a measure of net worth rather than the invested funds in the company's equity structure. Therefore, identifying capital as the invested funds allows for a clearer understanding of a company's financial standing and the role of owner equity in overall asset valuation.