The balance of payments (BOP) is a comprehensive accounting statement that records all economic transactions between a country’s residents and the rest of the world over a specific period, typically one year.

Structure:

The BOP consists of three main accounts:

1. Current Account — records trade in goods, services, primary income, and secondary income
2. Capital Account — records capital transfers and acquisition/disposal of non-produced, non-financial assets
3. Financial Account — records changes in foreign assets and liabilities, including:
   • Direct investment
   • Portfolio investment
   • Reserve assets

Key principle:

• The BOP follows the principle of double-entry bookkeeping — every transaction is recorded as both a credit and a debit
• Total credits should equal total debits, meaning the BOP should theoretically sum to zero
• In practice, statistical discrepancies often exist due to measurement errors and timing differences

A BOP surplus occurs when a country receives more foreign currency than it pays out, while a BOP deficit occurs when it pays out more than it receives.