What is contributed capital?

Contributed capital refers to the resources that investors provide to a business in exchange for ownership interest, making it a critical component of a company's equity. This capital is typically raised through the issuance of common or preferred stock, where investors buy shares and thereby inject funds into the business.

Understanding contributed capital is essential for analyzing a company's financial structure, as it reflects the amount of investment made by shareholders that can be used for business operations, expansion, or other critical activities. Since it denotes the funds contributed directly by the owners rather than earnings earned by the business, it forms a foundational part of the equity recorded on the balance sheet, distinguishing it from retained earnings and other equity components.

The other options do not capture the essence of contributed capital. Income earned by the company pertains to the profits generated, whereas retained earnings represent the profits retained in the business after dividends are distributed. Total liabilities refer to what the company owes, rather than the capital contributed by its owners.