Capital Account (Economics) - Explained
What is a Capital Account?
Written by Jason Gordon
Updated at April 25th, 2022
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Table of Contents
What is a Capital Account?How is a Capital Account Used? Corporate Capital AccountsAcademic Research on Capital AccountWhat is a Capital Account?
A capital account is an account that gives a summary of the transactions executed by a country with other entities and countries, it reflects the capital expenditure and income of the country. A capital account is often used in macroeconomics or international economics. A capital account is an account that depicts transactions such as imports, exports, investments, loans and other economic transactions that flow in and out of a country. It is the second half of balance of payments, a current account being the other half. In accounting, a capital account is also called shareholders equity, it is the account that reflects the net worth or net change in the ownership of a company.
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How is a Capital Account Used?
The balance of payments of a country comprises of two accounts; the current account and the capital account. Through a capital account, one can have a sneak peek into the transactions made between a country and others. The investment portfolios, import, export, and all foreign investment that can be directly linked to a country are reflected on this account. Hence, the economic health that a company services from import and exports is revealed in the capital account. This account also reflect how appealing a country is to foreign investors. The financial stability and future economic health if a country is expressly reflected by its capital account.
Corporate Capital Accounts
A capital account has a slightly different meaning in accounting as against how it is use in international accounting. The capital account of a business is a financial record of the retained earnings and capital contributed to the business by its owner. The capital account sums up the amount that the company has, it is the cumulative amount of the money held by the company at creation subtracted from dividends paid to shareholders. The capital account is also called shareholders equity in accounting.
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