Capital and Financial Accounts

View the most recent version.

Within the Canadian System of National Economic Accounts (CSNEA), the capital account and the financial account are shown in the same account, called the capital and financial account. This is done to emphasize the close relationship between the two accounts.

The capital account shows the sources of funds for investment (gross saving and net capital transfers received) and the use of funds (non-financial capital acquisition). The closing entry in the capital account is the sector’s net lending or borrowing.

At a very high level, the account shows whether or not the sector was able to generate enough internal funds to finance its investment activities. If the sector was able to generate more funds (gross saving and net capital transfers received) than it required for its investment activities it will be a net lender to the rest of the economy. If the sector was not able to generate sufficient funds to support its investment activities then it would be a net borrower from the rest of the economy.

The financial account is the financial counterpart to the capital account. It shows how the net lending or net borrowing was financed. The financial account's closing entry is therefore also net lending and net borrowing, but is articulated by showing the transactions in financial assets and liabilities. The degree of instrument detail indicates the breadth of financial activities in a modern capitalist economy, and the degree of sectoral detail highlights the complexity of the financial system as well as its role in transferring funds from deficit to surplus sectors.

If the sector is a net lender the financial account will show the acquisition of assets and/or reduction of liabilities associated with the lending activity. If the sector is a net borrower the financial account will show the disposal of assets or incurrence of liabilities associated with the borrowing activity. Within the CSNEA, the balancing in the financial account is referred to as net financial investment. While conceptually equivalent to the measure of net lending or net borrowing found in the capital account, the CSNEA has chosen to use the term net financial investment to highlight the fact that it is compiled from a different perspective.

In addition, within the CSNEA there exists a statistical discrepancy between the net lending and net borrowing in the capital account and the net financial investment in the financial account. While in theory these measures should be the same, due to the fact that different data sources are used to compile the accounts, a discrepancy exists. The size of the discrepancy provides some indication of the quality of the measure. In general, the larger the discrepancy the lower quality the estimate.

The following table includes estimates of capital, transactions in financial assets and liabilities and net financial investment by institutional sector.