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Class 12 Macro Economics Notes · CBSE

Introduction to Balance of Payments

Meaning of balance of payments as a systematic record of all economic transactions between residents and the rest of the world, and the structure of current account and capital account. CBSE Class 12 Macroeconomics notes

Last updated: 2 Sep 2026

Notes

Meaning of Balance of Payments

Balance of Payments (BOP)
An accounting statement that provides a systematic record of all the economic transactions between residents of a country and the rest of the world, in a given period of time.

BOP is a summary statement in which all the economic transactions between residents and the rest of the world are recorded during a particular period of time (usually one year).

Flow Concept

BOP is a flow concept — it is related to a given period of time (usually one year), not a single point in time. This means we always say “India's BOP in 2025” — never “India's BOP today.”

BOP Ledger — Double Entry System

Credit Side (+)

All inflows or sources of foreign exchange

  • +Exports of goods (merchandise)
  • +Exports of services (banking, insurance, shipping)
  • +Income receipts from abroad (dividends, interest)
  • +Unilateral transfers received (gifts, remittances)
  • +Capital receipts (borrowings, sale of assets)

Debit Side (−)

All outflows or uses of foreign exchange

  • −Imports of goods (merchandise)
  • −Imports of services (shipping, insurance, consulting)
  • −Income payments to abroad (dividends, interest)
  • −Unilateral transfers sent (gifts, donations)
  • −Capital payments (loan repayments, purchase of assets)
In accounting sense, BOP is always balanced: Balanced Surplus Deficit

Who Are Residents?

For BOP purposes, residentsare individuals, firms, and government agencies that have their economic interest Centre of economic interest in a country's economic territory. Not everyone within the country qualifies as a resident.

Included as Residents

  1. 1.Individuals
  2. 2.Firms
  3. 3.Government agencies

Excluded from Residents

  1. 1.Diplomatic staff
  2. 2.Foreign military personnel
  3. 3.Tourists
  4. 4.Migratory workers
  5. 5.Branches of foreign companies
Even though excluded groups work and operate within the domestic territory of the country, their economic interest Centre lies outside — so they are not counted as BOP residents.

Economic Transactions

All economic transactions recorded in the BOP fall into four broad categories. Click any card to explore its description and a real-life example.

Quick Recap

Key Takeaways

  • BOP is a systematic record of all economic transactions between residents of a country and rest of the world.
  • It includes transactions relating to visible items, invisible items, unilateral transfers and capital transfers.
  • It is a flow concept as it is related to a given period of time.
  • It is prepared as per Double Entry System. Inflows of foreign exchange are recorded on the credit side and outflows on the debit side.