Balance of Payments

Lesson

Part 1 — what the BoP records, the current and capital accounts, and surplus, deficit and reserves.

In this lesson you will

Explain the meaning of the balance of payments and its two main accounts
Classify transactions into the current and capital accounts, as receipts or payments
Calculate the balance of trade, the current account balance and the overall balance
Distinguish autonomous from accommodating transactions and explain BoP surplus and deficit

Part 1 at a glance

Concept

What is the balance of payments?

The balance of payments (BoP) is a systematic record of all economic transactions between the residents of a country and the rest of the world during a period, usually a year.

Table explaining the key words in the meaning of the balance of payments: systematic record, economic transactions, residents and the rest of the world, during a period
Key word	What it means
Systematic record	Every transaction is entered under a fixed heading, by double entry
Economic transactions	Goods, services, income, transfers, and assets or liabilities
Residents and the rest of the world	Only transactions that cross the national boundary of residence
During a period	A flow, usually over a financial year

Diagram

Structure of the BoP

Two main accounts, plus the balancing items

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