Accounting Of Balance Of Payments Essay examples

840 Words Jan 16th, 2016 4 Pages
As the world moves more global in terms of conducting business, the balance of payments gets more and more important. With the balance of payments “all the transactions of the residents of a nation with the residents of all other nations are recorded” (Salvatore, 2001) for a specified period of time. “The balance-of-payments accounts of a country record the payments and receipts of the residents of the country in their transactions with residents of other countries. If all transactions are included, the payments and receipts of each country are, and must be, equal. Any apparent inequality simply leaves one country acquiring assets in the others” (Econlib.org, 2016). Nations such as the United States keep such a record of this. Knowing exactly the balance of payments helps governments create meaningful policies to address the issues. The recordkeeping of this follows double entry bookkeeping. This accounting of balance of payments includes debit and credit transactions. A credit transaction involves the “receipt of payments from foreigners” (Salvatore, 2001) and debit transactions involve the “making of payments to foreigners” (Salvatore, 2001). Part of the balance of payments is both the current account and financial account. The current account includes all the sales and purchases of the produced goods and services. “A current account surplus stimulates domestic production and income, while a current account deficit dampens domestic production and income” (Salvatore, 2001).…

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