Balance Of Payments

International trade and other international transactions result in a flow of funds between countries. All transactions relating to the flow of goods, services and funds across national boundaries are recorded in the balance of payments of the countries concerned. Balance of payments (BoPs) is systematic statement that systematically summarizes, for a specified period of time, the monetary transactions of an economy with the rest of the world. Put in simple words, the balance of payments of a country is a systematic record of all transactions between the ‘residents’ of a country and the rest of the world. Balance of payments statistics must be arranged within a coherent structure to facilitate their utilization and adaptation for multiple purposes (policy formation, analytical studies, projections, bilateral comparisons of particular components or total transactions, regional and global aggregations, etc.). The balance of payments includes both visible and invisible transactions. It presents a classified record of: 

• All receipts on account of goods exported, services rendered and capital received by 'residents' and
• Payments made by then on account of goods imported and services received from the capital transferred to 'non-residents' or 'foreigners'.

Thus the transactions include the exports and imports (by individuals, firms and government agencies) of goods and services, income flows, capital flows and gifts and similar one-sided transfer of payments. A rule of thumb that aids in understanding the BOP is to "follow the cash flow". Balance of payments for a country is the sum of the Current Account, the Capital Account, and the change in Official Reserves.  In balance of payments the principle of accrual accounting governs the time of recording of transactions. Therefore, transactions are recorded when economic value is created, transformed, exchanged, transferred, or extinguished. Claims and liabilities arise when there is a change in ownership. Put in simple words, balance of payments is usually prepared for a year but may be divided into quarters as well.