Bop accounting

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What Is the Balance of Payments?
Norman S. Fieleke Vice President and Economist Federal Reserve Bank of Boston

Federal Reserve Bank of Boston July 1976 ● Revised August 1985 and October 1996

Last revised in 1996, this monograph does not reflect significant changes in the U.S. balance of payments accounts made in 1999. For further information on these changes, see Christopher L. Bach, "U.S.International Transactions, Revised Estimates for 1982-98," Survey of Current Business, July 1999, pp. 60-74.

Hypothetical Transactions between U.S. Residents and Foreign Residents (In millions of dollars)
Excess of Debits ( ) or Credits ( )

Line 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Account Exports of goods and services, and income received Goods Services Income on U.S.investments abroad Imports of goods and services, and income paid Goods Services Income on foreign investments in U.S. Unilateral transfers Changes in U.S. claims on foreigners
1

Debits

Credits

60 (1) 49 (1) 1 (3) 10 70 (4) 65 (5) 5

60 49 1 10 70 65 5

(6)

1 61

1 39

100

U.S. official reserve assets Gold Foreign currency balances Other Other U.S. Government claims U.S. privateclaims Direct investments Other U.S. private ‘‘long-term’’ claims U.S. private short-term claims

(7) 40 (1) 50

40 (3) 10 (2) 50 (6) 1 (4) 10 1

20 21 22 23 24

Changes in foreign claims on U.S. (i.e., in U.S. liabilities to foreign residents)2 Foreign official claims Foreign private short-term claims Other Total Memoranda: Balance on goods and services (lines 2, 3, 6, & 7) Balance oncurrent account (lines 1, 5, & 9) Transactions in U.S. official reserve assets and in foreign official assets in the United States (lines 12, 13, 14, & 21)
1 2

75 (2) 50

125 (8) 25 (8) 25 (4) 55 (7) 40 246 (5) 5

50 25 25 0

246

25 26 27

20 11

25

Including U.S. real property abroad. Including foreign real property in the United States.

Last revised in 1996, this monograph doesnot reflect significant changes in the U.S. balance of payments accounts made in 1999. For further information on these changes, see Christopher L. Bach, "U.S. International Transactions, Revised Estimates for 1982-98," Survey of Current Business, July 1999, pp. 60-74.

A Short Definition
A country’s balance of payments is commonly defined as the record of transactions between its residents andforeign residents over a specified period. Each transaction is recorded in accordance with the principles of double-entry bookkeeping, meaning that the amount involved is entered on each of the two sides of the balance-of-payments accounts. Consequently, the sums of the two sides of the complete balance-of-payments accounts should always be the same, and in this sense the balance of paymentsalways balances. However, there is no bookkeeping requirement that the sums of the two sides of a selected number of balance-of-payments accounts should be the same, and it happens that the (im)balances shown by certain combinations of accounts are of considerable interest to analysts and government officials. It is these balances that are often referred to as “surpluses” or “deficits” in the balance ofpayments. This monograph explains how such measures of balance are derived and presents standard interpretations of them. Full understanding requires a grasp of elementary balance-of-payments accounting principles, so these principles are outlined and illustrated in the first two sections.

Recording of Transactions: General Principles
The double-entry bookkeeping used in accounting for thebalance of payments is similar to that used by business firms in accounting for their transactions. In ordinary business accounting the amount of each transaction is recorded both as a debit and a credit, and the sum of all debit entries must, therefore, equal the sum of all credit entries. Furthermore, in business accounting it is recognized that the total value of the assets employed by the firm...
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