(b) Services Balance
(c) Net Property Income Balance
(d) Current Transfers Balance
The Components of the BOP Account
• The capital account records all movement of capital from both private sources as well as official government sources between a country and the rest of the world.
• It must be noted that when the balances of both sections are added there can be a surplus or a deficit.
• The account must therefore show the treatments of any of these two situations as well as the item to “balance off” the account. This is strictly for accounting purposes. All surplus or deficits must be dealt with.
• It may consist of transfer of ownership of a fixed asset， direct investments, portfolio investments, other investments and reserve assets.
The Components of the BOP Account
balance on the current account.
The Components of the BOP Account
• The Current Account generally comprises four main items: (a) Merchandise Trade Balance
• Any item which gives rise to the purchase of foreign exchange (an outflow) is recorded as a debit item (-) in the accounts e.g imports of goods and services.
An economic transaction is an exchange of value. It involves a receipt and a payment of money in exchange for economic goods and services.
Accounting Treatment of Items
import and export of merchandise or goods) (b) Invisible balance (balance of invisible trade): primarily
the import and export of services. N.B. The sum of the two balances is referred to as the
Sample BOP Accounts
Sample BOP Accounts
5/9/2020
Sample BOP Accounts
Balance of Payments Disequilibrium
• A deficit or an unfavourable balance exists when the value of autonomous debit items exceeds the value of autonomous credit items.
The Components of the BOP Account
The Current Account generally comprises two sections: (a) Visible balance (balance of visible trade): primarily the
• A surplus or a favourable balance exists when the value of autonomous credit items exceeds the value of autonomous debit items.
Accounting Treatment of Items
• In terms of actual receipts and payments, a country may be faced in any given year with one of two situations. (a) A surplus or favourable balance on the BOP accounts. (b) A deficit or unfavourable balance on the BOP accounts.
• In standard accounting double entry bookkeeping, each transaction will result in a debit and a credit entry of equal size or amount.
• Thus in that sense, a country’s balance of payments accounts for any given year always balances.
Accounting Treatment of Items (Debit and Credit Items)
• Any item which gives rise to a sale of foreign exchange (an inflow) is recorded as a credit item (+) in the accounts e.g. export of goods and services.
The Components of the BOP Account
• The Balance of Payments Account consists of two parts: (i) A current account (ii) A capital (and financial) account
The Components of the BOP Account
• The Capital Account deals primarily with short term and long term flows/movements of capital, that is, it is concerned with international loans and investments.
Unit 4
BALANCE OF PAYMENTS
Defining Balance of Payments
The balance of payments is a record of all ecoБайду номын сангаасomic transactions conducted between a country and the rest of the world for a given time period, usually one year.