A country's balance of payments is commonly defined as the record of transactions between its residents and foreign residents over a specified period. Each transaction is recorded in accordance with the principles of double-entry bookkeeping, meaning that the amount involved in each transaction is entered on each of the two sides of the balance-of-payments accounts. Consequently, the sums of the two sides of the complete balance-of-payments accounts should always be the same, and in this sense the balance of payments always balances.
However, there is no bookkeeping requirement that the sums of the two sides of a selected number of balance-of-payments accounts should be the same, and it happens that the (im )balances shown by certain combinations of accounts are of considerable interest to analysts and government officials. It is these balances that are often referred to as "surpluses" or "deficits" in the balance of payments.
This monograph explains how such measures of balance are derived and interpreted. Full understanding of the derivation requires a grasp of elementary balance-of-payments accounting principles, so these principles are outlined and illustrated in the first two sections.
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