ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Description: The capital expenditure and income is tracked by way of funds in the form of investments and loans flowing in and out of an economy. This account comprises foreign direct investments, portfolio investments, etc. It gives a summary of the net flow of both private and public investment into an economy.

Detailed explanation-2: -The components of the capital account include foreign investment and loans, banking, and other forms of capital, as well as monetary movements or changes in the foreign exchange reserve. The capital account flow reflects factors such as commercial borrowings, banking, investments, loans, and capital.

Detailed explanation-3: -There are two ways of maintaining a capital account in a partnership form of business organisation which are 1) Fixed Capital Account and 2) Fluctuating Capital Account.

Detailed explanation-4: -Definition of capital accounts A debit to a capital account means the business doesn’t owe so much to its owners (i.e. reduces the business’s capital), and a credit to a capital account means the business owes more to its owners (i.e. increases the business’s capital).

Detailed explanation-5: -Under fixed capital account method, the capital account always shows a credit balance.