Balance Of Payments (BOP) | Meaning and Definition

What is a BOP?

Balance of payments means (BOP) a record of all monetary transactions between residents of a country and the rest of the world. It’s used to track how much money is coming into and out of a country.

The BOP consists of two main accounts: the current and capital accounts. The current account includes all goods and services (exports and imports) transactions, while the capital account includes all transactions related to investments and loans (including foreign aid). 

The BOP is usually tracked on a monthly or quarterly basis. It can be used to measure a country’s economic health and its openness to international trade. 

Components of BOP

The Balance of Payments (BOP) summarizes all economic transactions between residents of one country and the rest of the world during a particular period. The three main components of the BOP are:

  1. The current account – This measures how much money is coming into or going out of a country for goods, services, and income.
  2. The capital account – This measures how much money is coming into or going out of a country for investments (such as buying stocks and bonds or making loans).
  3. The financial account measures how much money is coming into or going out of a country due to financial transactions (such as buying and selling assets like stocks and bonds). 

What is the double-entry system?

Double-entry implies each financial transaction is recorded in at least two accounts. The two entries are designated as a credit and the other as a debit. This system of recording transactions is called double entry because there are always two entries for each transaction.