What is the Difference Between Capital Account and Current Account?
🆚 Go to Comparative Table 🆚The capital account and current account are two components of a country's balance of payments, which record its international transactions. The main differences between them are:
- Meaning: The current account focuses on the trade balance, net income, and direct payments of a nation, while the capital account evaluates capital expenditures and capital investments.
- Components: The current account comprises exports, imports, investment income, and transfers. In contrast, the capital account includes foreign direct investment, portfolio investment, and foreign loans.
- Measures: The current account measures a country's net income over a period of time, while the capital account records the net change in assets and liabilities during a particular year.
- Transactions: The current account records actual transactions, such as imports and exports of goods and services, foreign investors' payments, and transfers like foreign aid. On the other hand, the capital account records changes in asset value through investments, loans, banking balances, and real property value.
- Balance: The sum of the current account and capital account reflected in the balance of payments will always be equal. Any surplus or deficit in the current account is matched and canceled out by an equal surplus or deficit in the capital account.
In summary, the current account deals with the flow of money from exports, imports, and other transactions, while the capital account records the changes in a country's financial assets and liabilities due to investments, loans, and other capital-related activities.
Comparative Table: Capital Account vs Current Account
Here is a table highlighting the differences between the capital account and the current account:
Differences | Current Account | Capital Account |
---|---|---|
Meaning | Represents the trade balance, net income, and direct payments of a nation. | Evaluates capital expenditures and capital investments. |
Components | Exports/imports, investment income, and transfers. | Foreign direct investment, portfolio investment, and foreign loans. |
Measures | Exports and imports of a nation's goods and services. | Trading of foreign assets and liabilities. |
Balance of Payment | Represents the trade balance of a nation, direct payments, and net income. | Represents capital investments and expenditures. |
Balance | A negative balance indicates a net borrower. | A surplus indicates an inflow of money. |
Purpose | Helps investors find out the trade deficit or surplus of a nation. | Helps investors determine the net investment position of a nation. |
The current account focuses on the net income of a country within a year and includes components such as exports/imports, investment income, and transfers. On the other hand, the capital account reflects the net change in the ownership of national assets of a country within a particular year and includes components like foreign direct investment, portfolio investment, and foreign loans.
- Current Account vs Saving Account
- Balance of Trade vs Balance of Payment
- Nominal Account vs Real Account
- Money Market vs Capital Market
- Cash Accounting vs Accrual Accounting
- Capital vs Asset
- Equity vs Capital
- Cash vs Accrual (Accounting)
- Savings vs Checking Account
- Fixed Capital vs Working Capital
- Current vs Noncurrent Assets
- Accounts Payable vs Accounts Receivable
- Capital Expenditure vs Revenue Expenditure
- Bookkeeping vs Accounting
- Current Balance vs Available Balance
- Debit vs Credit
- Debit Balance vs Credit Balance
- Accounting vs Finance
- Accountancy vs Commerce