Balance of Payments -Book-Keeping:

The  balance  of  payments  is essen~!'ally  an application of  the double-entry book- keeping, since it records both  transactions and  the money flows associated with those transactions. Transactions, which give rise to money receipts hm the rest of  the world, are  recorded  in  the credit side  of  the balance of  payments.

On the other hand, transactions, which lead to monetary  payments abroad, are recorded in  the debit side of  the balance of payments accounts. If we do this in a proper way debits and credits will always be equal, so  that in an accounting sense the balance of payments will always be  in  balance.  An  accounting balance is however not synonymous  with balance of payments equilibrium.

It  is  important to keep in mind that a balance-of-payments account records flows  between countries over a specified period of time (usually a year for the full accounts,  but often  less  for  some  components of the accounts). Some  items in the balance of payments are readily identified as flows, such as  exports.

Other items, however, are flows arising  from changes in stocks. Traditionally there are two basic  elements in a perfectly  compiled  set  of balance-of-payments aeccwts:  the current  account and  the  capital account. Each of these is usually subdivided, the former into visible and invisible  trade and unrequited transfers, the  latter into  long-term and  short-term  private transactions  and changes  in official reserves. The essential  difference between the  two  is  that  capital account transactions  necessarily involve domestic residents either acquiring or surrendering claims  on foreign residents, whereas current account  transactions do not.  In practice there is a third element, the 'balancing item' or  'errors and omissions', which reflects our inability  to  record all international  transactions accurately.