Capital Account Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Capital Account, written in plain English, along with examples of how it is used.
What is Capital Account?
(n)(1) Capital account is the items or transaction in a business activity which is enduring in nature and its utility exceeds beyond the limiting period on an year for which revenue activities are considered. (2) The term used to represent the international investment flow from and to a country
History and Meaning of Capital Account
In finance, a capital account is a record of the inflows and outflows of capital into an economy during a specific period of time. This can refer to investments made by foreign entities into a country or investment made by a country's citizens in other countries. The capital account is an important measure of the overall economic health of a country.
Capital accounts were originally used to measure the flow of physical assets between countries, such as machinery or land. However, in modern times, the term is often used to refer to financial assets, such as stocks or bonds. The capital account can also include transfers of ownership of assets between different countries or entities.
Examples of Capital Account
- A foreign investor purchases shares in a U.S. company, resulting in an inflow of capital into the U.S. economy.
- A U.S. citizen purchases real estate in Spain, resulting in an outflow of capital from the U.S. economy.
- A Japanese company buys a factory in Germany, resulting in an inflow of capital into the German economy.
- Current account: Tracks the flow of goods and services between countries.
- Balance of payments: Measures the overall economic transactions between a country and the rest of the world.
- Foreign direct investment: Refers to when a company or individual invests in a foreign country, often involving the establishment or acquisition of a subsidiary in that country.