In India, the foreign exchange transactions (transactions in dollars, pounds, or any other currency) are broadly classified into two accounts: current account transactions and capital account transactions. If an Indian citizen needs foreign exchange of smaller amounts, say $3,000, for travelling abroad or for educational purposes, she/he can obtain the same from a bank or a money-changer. This is a "current account transaction". But, if someone wants to import plant and machinery or invest abroad, and needs a large amount of foreign exchange, say $1 million, the importer will have to first obtain the permission of the Reserve Bank of India (RBI). If approved, this becomes a "capital account transaction". This means that any domestic or foreign investor has to seek the permission from a regulatory authority, like the RBI, before carrying out any financial transactions or change of ownership of assets that comes under the capital account. Of course there are a whole range of financial transactions on the capital account that may be freed form such restrictions, asis the case in India today. But this is still not the same as full capital account convertibility.
By "Capital Account Convertibility" (or CAC in short), we mean "the freedom to convert the local financial assets into foreign financial assets and vice-versa at market determined rates of exchange. It is associated with the changes of ownership in foreign/domestic financial assets and liabilities and embodies the creation and liquidation of claims on, or by the rest of the world. …" (Report of the Committee on Capital Account Convertibility, RBI, 1997) Thus, in simpler terms, it means that irrespective of whether one is a resident or non-resident of India one's assets and liabilities can be freely (i.e. without permission of any regulatory authority) denominated (or cashed) in any currency and easily interchanged between that currency and the Rupee.
The balance of payments, then, is the sum of the balance on current account and the balance on capital and financial account. It is important to understand that the deficit indicated by the current account is financed through activities recorded on the capital and financial account. The deficit on the current account must be exactly offset by the surplus on the capital and financial account (if it is not, net errors and omissions will correct it). This means then that the sum of the current account and the capital and financial account is equal to zero.
A capital account in economics, is one of two primary components, the balance of payments, and the current account. The current account reflects the nation's net income, and the capital account reflects the net change in the national ownership of assets.
A basic balance is the net balance of the combination of a current account and a capital account in a balance of payments.
Current account+capital account+financial account+balance items=0
The capital market has to do with the global economy and is in reference to how much a dollar is work compared to currency of another country. The money market is an account that is offered by a financial institution much like a savings account that draws a small amount of interest and the account is owned by an individual.
An advantage is that is encourages short-term investments from foreigners. A disadvantage is that may take away investments from Indian companies.
Current account convertibility means freedom to buy or sell foreign exchange for the entire trade purposes.(Eg: buying and selling of goods,interest payments etc...)
The normal balance in a capital account is a credit. Capital is a balance sheet account. Assets = Liabilities + Capital
Capital account as well as Drawings account are Personal accounts !!!
The United States ultimately could not maintain the dollar's promised convertibility, ending it in 1971.
[Debit] Interest on capital account xxxx [credit] Capital account xxxx
Real Account
Personal account
Withdrawal are charged to drawing account and drawing account is contra account of capital account so withdrawal are deducted from capital account.
Current account shows current year current year transactions and capital account shows both current transactions relating to businessman and initial capital of businessman.According to FEMA Act 2000, "There is no restrictions on holding or exchanging of foreign currency under Current Account . But Any foreign currency is under capital account , then it must be controlled under the regulations of RBI."In partnership , partners can make current account separately from capital account in which they can show only their salary, interest on capital and interest on drawing etc. and in capital account, they can show only their capital invested in the business of partnership.USA has divided export and import transactions into 2 accounts: One is the current account and other is the capital account. The current account includes in international trade in goods and services and with earnings on investments. The capital account includes of capital transfers and the acquisition and disposal of non-produced, non-financial assets.In general Current account is used for receipt and payment cash and non capital items and capital account is used for sources and utilization of capital.
Capital account increases when capital is introduced, shares are issued, increase in retained profits, etc.
Drawings account is contra account for reducing the owners capital account and as capital account is credit so contra account should be debit so that it can use to reduce the balance from owner’s capital.