The document defines and explains the key concepts of a country's balance of payments (BOP). It states that BOP is the systematic accounting of all economic transactions between a country's residents and the rest of the world over a period, usually a year. For accounting purposes, transactions are grouped under current transactions, capital transactions, reserves accounts, and errors and omissions. Current transactions include exports, imports and unilateral transfers, while capital transactions involve foreign investment, borrowing and lending, and banking transactions. The reserves account shows a country's foreign exchange holdings and the errors and omissions entry balances any reporting discrepancies.

1. BALANCE OF PAYMENT

2. BOP- Meaning
Balance of payment is the systematic
accounting of all economic transactions
between the residents of the country and
the residents of the rest of the world
over a period of time, usually a year.
In other words BOP of a country is an
account of all international receipts and
payments for the accounting year.

3. BOP- Purpose
The purpose of Balance of Payments
Accounting economic transactions between the
country and rest of the world - it's exports,
imports, foreign investments- and inflows and
outflows of incomes during a specific time
period are grouped under
 current transactions, and
 capital transactions.

4. BOP- Accounts
For the purpose of BOP accounting, economic
transactions between a country and the rest of the
world during a specific time period are grouped
under two broad categories:
 Current transactions
 Capital transactions
 Reserves accounts
 Errors and omissions

5. Current Transactions
Current transactions includes transactions that
affect the current level of income and
consumption of the country during the year in
which the balance of Payments is prepared.
Current transactions include the following:
exports and imports of goods and services.
unilateral receipts and payments like gifts,
donations etc.

6. Capital transactions
Capital transactions are those transactions that
results in inflows and outflows of capital.
Capital transactions include the following:
 Foreign investment- inflows and outflows
 Foreign borrowing and lendings
 Banking transactions- receipts and payments.

7. Reserves accounts
It shows the foreign exchange
position of the country.
Official reserve account has the
records of foreign official holdings
and increase reserves of gold and
foreign countries.

8. Errors and omissions
The entries under this head relate
mainly to leads and lags in reporting
of transactions.
It is of a balancing entry and is
needed to offset the overstated or
understated components.

9. Methods for assessing BOP
The methods of assessing Balance of Payments
includes the assessment of :
 Balance of Trade
 Current account balance and,
 Balance of Payments i.e. the overall balance.

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