What is the difference between current account and capital account in accounts
The current account and capital account serve very different purposes in accounting and economics. Here’s a clear comparison, focusing on their meaning in accounting/business context (and also touching on their use in international economics, if that's what you're referring to):
???? In Business/Partnership Accounting Context
? Current Account
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Purpose: Tracks ongoing transactions between a partner and the firm.
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Includes: Drawings, interest on capital, share of profit/loss, salary to partner.
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Nature: Fluctuating – updated regularly.
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Balance Type: Can have a debit (if partner owes firm) or credit balance (if firm owes partner).
? Capital Account
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Purpose: Records the initial and additional capital contributed by a partner to the firm.
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Includes: Initial investment, permanent changes in capital.
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Nature: Usually fixed (unless the fluctuating capital method is used).
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Balance Type: Usually a credit balance, representing owner's equity.
???? Key Differences (in Table Form):
| Feature | Capital Account | Current Account |
|---|---|---|
| Purpose | Tracks partner’s capital contribution | Tracks regular partner transactions |
| Frequency | Changes rarely | Changes frequently |
| Nature | Fixed or fluctuating | Always fluctuating |
| Typical Balance | Credit (equity) | Debit or credit |
| Included Items | Initial/additional capital | Drawings, interest, share of profit |
???? In International Economics Context
If you're referring to balance of payments (for a country):
? Current Account
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Includes:
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Exports and imports of goods/services
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Income (interest, dividends)
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Current transfers (remittances)
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Shows: Day-to-day transactions with the rest of the world
? Capital Account
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Includes:
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Capital transfers
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Acquisition/disposal of non-produced, non-financial assets
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Often small in comparison to the financial account.
There’s also the Financial Account, which includes FDI, loans, portfolio investments, etc.
