Question

explain Transaction reported in accounts financial, capital and current (with debit and credit) 1. US company hires an UK consultancy firm to solve some issues. 2. U.S. firm acquires 100% shares of an UK tele company. 3. US resident purchases a computer made in china from an US retailer 4. US company purchases insurance from a Canada based insurance company. 5. US investor buys some UK treasury bonds.

Answer 1

1. This is a CAPITALaccount transaction as United State company is hiring consultancy firm which is capital expenditure in nature.

2.This is a FINANCIAL account transaction as acquiring of share will increase the ownership of United State company.increase of ownership into another country always is recorded under financial account.

3.Acquiring of computer from China is current account transaction as it is related to current expenditure.

4.Purchasing of an insurance is related to CAPITAL account expenditure and it is recorded in CAPITAL account.

5.Purchasing of United Kingdom treasury bonds will lead to increase in international asset and hence it is a financial transaction and to be recorded in FINANCIAL account.