Capital account (financial accounting)

In financial accounting, the capital account is one of the accounts in shareholders' equity. Sole proprietorships have a single capital account in the owner's equity. Partnerships maintain a capital account for each of the partners.

Capital Accounting (Financial Account)

The current account, the capital account and the financial account make up a country's balance of payments (BOP). Together these three accounts tell a story about the state of an economy, its economic outlook and its strategies for achieving its desired goals. A large volume of imports and exports, for example, can indicate an open economy that supports free trade. On the other hand, a country that shows little international activity in its capital or financial account may have an underdeveloped capital market and little foreign currency entering the country in the form of foreign direct investment.In Macroeconomics and international finance, the capital account (also known as financial account) is one of two primary components of the balance of payments, the other being the current account. Whereas the current account reflects a nation's net income, the capital account reflects net change in national ownership of assets. The term "capital account" is used with a narrower meaning by the International Monetary Fund (IMF). Capital account is splited into two divisions: financial account and capital account,in which the tran saction is being recorded in its financial account

           The Capital and Financial Accounts The capital account deals with debt forgiveness, the transfer of goods and financial assets by migrants leaving or entering a country, the transfer of ownership on fixed assets, the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance taxes, death levies, patents, copyrights, royalties and uninsured damage to fixed assets. In the financial account the government-owned assets (i.e. special drawing rights at the International Monetary Fund (IMF) or foreign reserves), private sector assets held in other countries, local assets held by foreigners (government and private), foreign direct investment, global monetary flows related to investment in business, real estate, bonds and stocks. The capital account in macroeconomics At high level: Capital account = Change in foreign ownership of domestic assets-
 Change in domestic ownership of foreign assets

Breaking this down: Capital account = Foreign direct investment + Portfolio invetment + Other investment+ Reserve account

Foreign direct investment(FDI),refers to long term capital investment such as the purchase or the construction of machinery,buildings or even whole manufacturing plants. If foreigners are investing in a country, that is an inbound flow and counts as a surplus item on the capital account. If a nation's citizens are investing in foreign countries, that's an outbound flow that will count as a deficit. After the initial investment, any yearly profits not re-invested will flow in the opposite direction, but will be recorded in the current account rather than as capital. Portfolio investment refers to the purchase of shares and bonds. It's sometimes grouped together with "other" as short term investment. As with FDI, the income derived from these assets is recorded in the current account; the capital account entry will just be for any international buying or selling of the portfolio assets.

Other investment includes capital flows into bank accounts or provided as loans. Large short term flows between accounts in different nations are commonly seen when the market is able to take advantage of fluctuations in interest rates and / or the exchange rate between currencies. Sometimes this category can include the reserve account.