Understanding the Capital Account: Balance of Payments Explained

Capital account is part of the balance of payments.

Capital account tracts the investments and loans in and out of the country. It is part of the balance of payments that record a country's transactions throughout a period. Transactions in the balance of payments are recorded as credits. The balance of payments include the capital account, current account and financial account. Capital account is physical assets including buildings. Current accounts include services, income and current transfers. Financial accounts include investment portfolios and international flow of money.

Step 1

Add the net current transfers with the net income abroad. Current transfers include donations, aids and grants. Net income abroad involves gain or loss of any investments abroad.

Step 2

Add the imports of goods and services to the total. Services include tourism and royalties.

Step 3

Subtract the export goods and services from the new total. This total should be a positive number if the country is in surplus, however it can be a negative number meaning there is a deficit.