Double Entry Accounting

The Balance of

Payments

Chapter Outline

Double Entry Accounting

Balance-of-Payments Structure

U.S. Balance of Payments

What Does a Current Account Deficit (Surplus) Mean?

Balance of International Indebtedness

The Dollar as the Worlds Reserve Currency

The Balance of Payments

The Balance of Payments is a record of the economic transactions

between the residents of one country and the rest of the world

Records are kept annually and quarterly

An international transaction is an exchange of goods, services, or

assets between residents of one country and those of another

Residents include businesses, individuals, and government

agencies that make the country their legal domicile

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Double-Entry Accounting (1 of 3)

Arranging international transactions into a balance-of-

payments account requires that each transaction be entered

as credit or debit. This is known as Double-Entry

Accounting.

A credit transaction results in a receipt of a payment

from foreigners; recorded with a +

A debit transaction is one that leads to a payment to

foreigners; recorded with a ?

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Double-Entry Accounting (2 of 3)

Examples of credits

Merchandise exports

Transportation and travel receipts

Income received from investments abroad

Gifts received from foreign residents

Aid received from foreign governments

Investments in U.S. by overseas residentsSelect a country of your choice and observe the last balance of payments issued by that country. Does the country run a current account deficit or surplus? What are the driving factors for the deficit or surplus? What are the implications of the current account deficit or surplus for the overall economy? What actions may better the nations situation? Explain.

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