balance of payment

(noun)

an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. The BoP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned.

Related Terms

Examples of balance of payment in the following topics:

  • The Balance of Payments

    • The balance of payments (BOP) is a record of all monetary transactions between a country and the rest of the world.
    • The balance of payments (BOP) is a record of all monetary transactions between a country and the rest of the world.
    • Whenever a country receives funds from a foreign source, a credit is recorded on the balance of payments.
    • It includes the balance of trade (net earnings on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors), and cash transfers.
    • The balancing item is simply an amount that accounts for any statistical errors and ensures that the total balance of payments is zero.

  • Balance of Payments

    • Balance of payments (BOP) accounts are an accounting record of all monetary transactions between a country and the rest of the world.
    • Balance of payments (BOP) accounts are an accounting record of all monetary transactions between a country and the rest of the world.
    • The term balance of payments often refers to this example: a country's balance of payments is said to be in surplus (balance of payments is positive) by a certain amount if sources of funds (such as export goods sold and bonds sold) exceed uses of funds (such as paying for imported goods and paying for foreign bonds purchased) by that amount.
    • There is said to be a balance of payments deficit (the balance of payments is said to be negative) if the former are less than the latter.
    • Then the net change per year in the central bank's foreign exchange reserves is sometimes called the balance of payments surplus or deficit.

  • Financing Balance-of-Payments Deficits and Surpluses

    • Strategy 1: If a country has a balance-of-payments deficit, it has an excess supply of currency on the foreign exchange markets.
    • On the other hand, a balance-of-payment surplus does the exact opposite.
    • If a country experiences a balance-of-payment surplus, then it allows its currency to appreciate.
    • For instance, a country is experiencing a balance-of-payments deficit.
    • Consequently, the financial account falls until the balance-of-payments surplus approaches zero.

  • Finding an Equilibrium Exchange Rate

    • There are two methods to find the equilibrium exchange rate between currencies; the balance of payment method and the asset market model.
    • The balance of payments model holds that foreign exchange rates are at an equilibrium level if they produce a stable current account balance.
    • Like purchasing power parity, the balance of payments model focuses largely on tangible goods and services, ignoring the increasing role of global capital flows .
    • The flows from transactions involving financial assets go into the capital account item of the balance of payments, thus balancing the deficit in the current account.
    • The key difference between the balance of payments and asset market models is that the former includes financial assets, such as stock, in its calculation.

  • Chapter Questions

    • Please define the following terms: current account, trade balance, financial account, and official settlement balance.
    • Why does a statistical discrepancy occur in the balance-of-payments accounts?
    • If a country has a fixed rate regime and experiences a balance-of-payments deficit, please explain how the country must maintain this exchange rate.
    • If a country has a managed float exchange rate regime and experiences a balance-of-payments surplus, please explain how the country must maintain this exchange rate.
    • In your answer, include the actions of the central bank.

  • Components of the Cash Budget

    • The cash budget includes the beginning balance, detail on payments and receipts, and an ending balance.
    • It is one of a series of accounting transactions dealing with the billing of a customer for goods and services that the customer has ordered.
    • Dividends received: Dividends are payments made by a corporation to its shareholder members.
    • It is the portion of corporate profits paid out to stockholders.
    • Other payment - Which includes Advertising, Selling expenses, Administrative expense, Insurance expenses, Rent expenses, etc.

  • Dividends Payable

    • Dividends are payments made by a corporation to its shareholders; the payment amount is reported as dividends payable on the balance sheet.
    • There are two ways to distribute cash to shareholders: share repurchases (reported as treasury stock in the owner's equity section of the balance sheet) or dividends.
    • For the company, a dividend payment is not an expense, but the division of after tax profits among shareholders.
    • On the dividend declaration date, a company's board of directors announces its intention to pay a dividend to shareholders on record as of a certain date (date of record).
    • On the declaration date, the Board announces the date of record and a payment date; the payment date is the date when the funds are sent to the shareholders and the dividends payable account is reduced for the payment amount.

  • Bonds Issued at Par Value

    • The affected accounts will be interest expense and cash, and the journal entry will be as follows: Interest Expense $70 Cash $70At bond expiration, the creditor must make a journal entry for the last interest payment and the retirement of the bond through principal payment.
    • To balance this entry, the company must also debit cash equal to the face value of all the bonds issued.
    • When the company makes an interest payment, it must credit, or decrease, its cash balance by the amount it paid in interest.
    • To balance the entry, the company must record a debit equal to the amount it paid in its bond interest expense account.
    • First, it must record any final interest payments that are made.

  • Introduction to the Balance Sheet

    • The balance sheet is a summary of the financial balances of a company and reflects the company's solvency and financial position.
    • The balance sheet is a summary of the financial balances of a sole proprietorship, a business partnership, a corporation, or other business organization, such as an LLC or an LLP.
    • Assets are the total resources of the business including cash, notes and accounts receivable, while liabilities are anything the company owes to someone, such as debt, mortgage or interest payments.
    • Finally, the balance sheet shows the book value of the owners' stake in the business.
    • Name the two types of balance sheets and identify which accounts are listed on the balance sheet

  • Being Aware of Off-Balance-Sheet Financing

    • An example of off-balance-sheet financing is an unconsolidated subsidiary.
    • Another example of off-balance-sheet financing is an operating lease, which are typically entered into in order to use equipment on a short-term basis relative to the overall useful life of the asset.
    • An operating lease does not transfer any of the rewards or risks of ownership, and as a result are not reported on the balance sheet of the lessee.
    • For example, if a company defaults on the rental payments required by an operating lease, the lessor could repossess the assets or take legal action, either of which could be detrimental to the success of the company.
    • Jeffrey Skilling is the former CEO of Enron, which was notorious for it's use of off-balance-sheet-financing.