This document provides an overview of balance of payments (BOP). It defines BOP as a systematic record of all economic transactions between residents of a country and foreign countries. It notes that BOP has two sides, includes both visible and invisible items, and is prepared for a certain period of time. The main components of BOP are the current account, capital account, and official reserves account. The current account covers trade in goods and services and transfers, while the capital account covers financial assets. A BOP surplus occurs when payments received exceed payments made, while a deficit is when payments made exceed receipts. For accounting purposes, the BOP of a country must always balance as every debit has an offsetting credit.

1. Balance of Payments

2. Contents
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Balance of Payments (BOP).
Nature of BOP.
Format of BOP.
Components of BOP.
Balance of Payments ‘Surplus’ and
‘Deficit’.
• The BOP of a Country Always Balances.
• The BOP Account of a Country.
• Specific Uses of BOP for a Business
Manager.

3. Balance of Payments (BOP)
“A systematic record of all
economic transactions
between the residents of
the reporting country and
residents of foreign
countries.”

4. Nature of Balance of Payments
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It is a statement having two sides.
It is a record of economic transaction.
It shows a relation between receipts &
payments.
• Visible & Invisible items both are included in
this statement.
• It is prepared for a certain period of time.

5. Format of Balance of Payments
• Current Account
• Capital Account
• Official Reserves
Account

6. Components of Balance of
Payment
• Current Account- The current account of a
country consists of all transactions related to
trade in goods and services and unilateral
transfers.
• Capital Account- The capital account of a
country consist of its transaction in financial
assets in the form of short-term and longterm lending and borrowing.

7. Components of Balance of
Payment (Contd…)
Official Reserves Account
• In fact it is a part of capital account. But in
UK and USA balance of payments accounts
shows as a separate account.
• It measures the change in nation’s liquid and
non liquid liabilities to foreign official holders
and the change in nation’s official reserve
assets.

8. BOP Surplus and Deficit
• BOP Surplus- An imbalance in a nation's
balance of payments in which payments
made by the country are less than payments
received by the country. This is also termed
as favorable balance of payments.
• BOP Deficit- An imbalance in a nation's
balance of payments in which payments
made by the country exceed payments
received by the country. This is also termed
as unfavorable balance of payments.

9. Balance of Payments of a Country
Always Balances
• The debit side shows the use of total foreign
exchange acquired in a particular period.
• The credit side shows the sources from which
the foreign exchange is acquired during a
particular period.
• Against every credit entry, there is an offsetting
debit entry & vice-versa, so the receipts and
payments on these two sides must be equal.
Hence the two sides must necessary balance.

10. Balance of Payments of a Country
Always Balances (Contd…)
• Eg : If X imports from Y, Y should also import from X. Hence,
there would be a debit and credit entries in the balance of
payments of both the countries X & Y.
• The individual items in the balance of payments may not
balance. But the total credits of the country must be equal
to its total debits.
• If there is any deficit in any individual account, it would be
covered by a surplus in other accounts.
• If there is any difference between total debits and total
credits, it would be settled under ‘errors & omissions’.
• Hence, in the accounting sense, the balance of payments of
a country always balances.

11. Balance of Payments (BOP) Account of a Country

12. Balance of Payments (BOP) Account of a Country (Contd…)
• The items 1 to 7 show the total receipts from all sources.
These receipts amount to Rs. 1000 Crores.
• The items 1(a) to 7(a) show the total payments on all
accounts. These payments amount to Rs. 990 Crores. When
item 8 included, the total payment is Rs. 1000 Crores. Hence,
the total credit is equal to the total debit.
• Thus the current a/c and capital a/c balance each other. Thus
surplus in current a/c is equal to the deficit in the capital a/c.
A deficit in current a/c is equal to the surplus in the capital
a/c.
• In the above given table, the balance of current a/c shows a
deficit of Rs. 200 Crores. But there is a corresponding surplus
of Rs. 200 Crores in the balance of capital a/c.
• Hence, the credit and debit side balance & the balance of
payments is in equilibrium.

13. Specific Uses of BOP for a
Business Manager
• A study of a country’s balance of payments can
help him in deciding whether he can
borrow/raise funds in a particular country or
invest his funds there.
• A proper analysis of balance of payments data
can reveal trends in factors that underlie the
value of the country’s currency in a foreign
market.

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