Question

"If the simple rule of double-entry bookkeeping holds true, the Balance of payments is always in balance." Discuss.

Answer 1

"If the simple rule of double-entry bookkeeping holds true, the Balance of payments is always in balance." This holds True as Every international transaction automatically enters the balance of payments twice, once as a credit and once as a debit.

Compilation of a BoP Account follows a double-entry accounting system where every external transaction is presented by two entries, a credit and a debit, with exact equal values but in opposite sign.

The two BoP entries are used to denote the giving and receiving sides of external transactions.

For example, if a resident of an economy sells goods to a non-resident (i.e. exports) and receives foreign currency in return, the two related BoP entries are: goods exported (a credit) and an increase in financial claim on non-resident (a debit).