What is Balance of Payment?
Balance of Payment is a statement of all transactions between entities in one country and the outside world over a specified time period, such as a quarter or a year. It lists all interactions between residents of one country and residents of other countries that involve businesses, organizations, or governments. Balance of Payments includes all the economic transactions, which involve the transfer of holding or title of goods and services. It is also known as the Balance of International Payments.
BoP is a self-balancing account like Trial Balance, as it also follows the Double Entry System. But in reality, there are cases when it is not equal. Thus, BoP can be:
- Balanced (When, Credit Side = Debit Side)
- Surplus (When, Credit Side > Debit Side)
- Deficit (When, Credit Side < Debit Side)
Difference between Balance of Payment and Balance of Trade
Balance of Payment and Balance of Trade are two important terms that are sometimes confused as the same. The former is a statement of all transactions between entities in one country and the outside world over a specified time period; however, the latter is the difference between the Export and Import of Goods.
Table of Content
- What is Balance of Payment?
- What is Balance of Trade?
- Difference between Balance of Payment and Balance of Trade