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Why is a CAD bad?

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DavidDenik:
Hey Seamus,
What if X has 200$ in savings, and spends 100$ on a phone shipped from China. X doesnt 'borrow' any money since he has his own and has decided to spend it on an import. So in this case he does have enough money to finance his expenditure so why does it state that we have to 'finance' our expenditure when X is using his own funds without borrowing?. In terms of the CAD, this would result in an entry of -100.. Why does this need to be counteracted by a CAFA surplus creating a liability?
Hope this makes sense again (Im sorry if it doesnt)

Seamus Wong:

--- Quote from: DavidDenik on May 26, 2019, 09:47:49 pm ---Hey Seamus,
What if X has 200$ in savings, and spends 100$ on a phone shipped from China. X doesnt 'borrow' any money since he has his own and has decided to spend it on an import. So in this case he does have enough money to finance his expenditure so why does it state that we have to 'finance' our expenditure when X is using his own funds without borrowing?. In terms of the CAD, this would result in an entry of -100.. Why does this need to be counteracted by a CAFA surplus creating a liability?
Hope this makes sense again (Im sorry if it doesnt)

--- End quote ---

Good that you're asking questions, so don't be sorry at all. Seriously, I'm sure no one else in my own class has a clue how it works, and none of them are asking any questions.

if X has $200 and only spends $100, then he doesn't have a CAD, he has a CAS (Current Account Surplus), therefore he doesn't need to borrow anything from overseas. He would probably now be the one who is lending the extra $100 he has to countries overseas, which we would see as a debit on CAFA.

Continue asking questions (even if u think they sound dumb) until you fully understand everything.

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