Definition: Owner investment, also called owner’s investment or contributed capital, is the amount of assets that the owner puts into the company. In other words, this is the amount of money or other assets that the owner contributes to the business either to start it or to keep it running.
What Does Owner Investment Mean?
The owner’s investment account is a temporary equity accountwith a credit balance. This means that the investment account is closed out at the end of each year increasing the balance in the owner’s capital account. You can think of an investment like the owner giving money to the company. Each time the owner gives money to the company; the owner’s capital account (his stake in the business) grows.
Withdrawal or distributions work the opposite way. Each withdrawal decreases the capital account balance and reduces the owner’s stake in the company assets.
Owners typically make investments or contributions to their companies in two different ways: cash or other assets. The first and most common form of investment is straight cash. Most owners contribute cash to their business when it needs extra financing for capital projects or expansions. Contributions aren’t limited to cash though. Any contribution from an owner counts. If an owner gives other assets like vehicles or equipment to the company, the owner’s investment account with also increase.
Both of these types of investments can happen at anytime during the life of a company. Typically, asset contributions happen in the beginning though. Take a startup lawn care business called Joe’s Lawn for example.
Joe has been mowing grass since he was ten years old. Now he is graduating high school and ready to actually start a business. He registers his business with the state and contributes all of his lawn care equipment. This contribution credits his owner investment account and debits the company equipment account.