The current accounts of the balance of payments refers to transactions in goods and services, income and current transfers. In other words it covers all transactions between residents and nonresidents other than financial items.
An account current is a statement, in debit and credit form of the various transactions that have taken place between two parties during the particular period interest being usually calculated on each rate and included in the account, it is nothing but a copy of one's account in the others ledger with the addition of interest, the calculation of interest being shown in an additional column. The account current is usually rendered: By a consignee to this consignor. By an agent to his principal. By one partner in a joint venture to the other. By a banker to his client. By a lender to the borrower and By head office to its branches. An account current when rendered is styled by the name to the person whom it is rendered in addition to the name of the person who renders it. The name of the party rendering the current accounts is mentioned after the name of the party to whom it is rendered.
METHODS OF CALCULATING INTEREST
There are three ways of calculating interest. They are as follows: By tables - Interest is calculated by tables from the due date of each transaction to the end of the period of the account on each item separately. The calculation can be done independently or the amount of interest of the particular amount for the number of days in question can be taken from interest tables. Interest columns on both sides of the account will then be totaled and the balance will be called out to the principal amount. By products - Under this method the amount of each item is multiplied by the number of days from the date to the end period and the products are placed in the product column especially provided on each side of the account. At the end of the period the products on each side to the current accounts are added up and balance. Interest is calculated on the balance of the product for one day in the amount column on that side whose product is greater. By interest number - This is merely a variation of the product method. Each product is divided by 100 and the quotient called interest number, is entered in the special column. The number columns are then balanced and interest on the balance of the number is extended into the account.
CALCULATION OF DAYS In recognizing the number of days for interest the date to the transaction is usually not taken into account. This means either the day on which the transaction is effected or the day to which the account is made up is not included.
MERCHANDISE TRADE
Merchandise trade represents exports and imports of commodities. The credit in the merchandise represents exports and debit represents imports. The net balance being the difference between exports and imports is known as the balance of trade. The values of exports are free on board prices i.e., excluding the cost of transportation from abroad. Imports represent cost insurance freight i.e. including freight and insurance paid for imports. However where freight and insurance on imports are paid separately to foreigners these are included under transportation and insurance.
INVISIBLES
Invisibles include services, transfers and investment income. It is titled invisibles to distinguish from merchandise trade also known as visible trade. Travel covers expenditure incurred by non-resident travelers during their stay in the country. It excludes international passenger services, which are included in transportation. Debit entries represent exchange sold for private and official travel. Transportation covers all receipts and payments on account of international transportation services except for the freight on imports invoiced cost insurance freight included under import payments. The credits include expenses of foreign transport companies and other receipts. The debits include expenses of payments to foreign transport companies. Insurance covers all receipts and payments relating to all types of insurance as well as reinsurance. Government not included elsewhere relates to receipts and payments on government account not included elsewhere as well as receipts and payments on account of maintenance of embassies and diplomatic missions and offices of international institutions such as UNO, WHO. Credits include allocations made for the US embassy expenditure. Miscellaneous items cover receipts and payments in respect of all other services such as agency services technicians and professional services technical know how royalties subscriptions for periodicals. Transfer of payments or unilateral transfers represent all receipts and payments without a quid pro quo. They include items like aid and grants received from or extended to foreign governments migrants transfer repatriation of savings remittances for family maintenance contributions and donations to religious organizations and charitable institutions. Investment income relates to remittances receipts and payments on account of profits dividends interest and discounts including interest charges and commitment charges on foreign loans including those on purchase from the international monetary fund.
BALANCE ON CURRENT ACCOUNT
What are important for decision making is not the absolute figures of exports or receipts and imports or payments but their difference which allows whether the country has earned or lost foreign exchange. Two important measures in this regard are
(a) balance of trade and
(b) balance of payments.
(a) Balance of trade refers to the net difference between the value of export and import of merchandise or the visible trade. When the aggregate exports of goods from the country during the period exceed its aggregate import the balance of trade is said to be favourable or excess or positive. If the imports go beyond exports the balance of trade is unfavourable or deficit or negative. Since imports and exports of a country seldom equal the balance of trade will not ordinarily balance. During any given phase the balance of trade will show either a favourable or an unfavorable balance.
(b) Balance of payments includes the foreign trade in its broad sense and includes not only visible trade but invisible items also. Thus this term is more comprehensive than balance of trade. In other words, balance of payments represents balance of trade plus balance on invisibles. It would be more appropriate to call this balance of payments on current account as it includes the net balance of all items included in the current account. As in the case of balance of trade the total amounts receivable and payable on current accounts do not balance and the balance of payments for a given period ends up in a favorable surplus or unfavourable deficit balance.
An account current is a statement, in debit and credit form of the various transactions that have taken place between two parties during the particular period interest being usually calculated on each rate and included in the account, it is nothing but a copy of one's account in the others ledger with the addition of interest, the calculation of interest being shown in an additional column. The account current is usually rendered: By a consignee to this consignor. By an agent to his principal. By one partner in a joint venture to the other. By a banker to his client. By a lender to the borrower and By head office to its branches. An account current when rendered is styled by the name to the person whom it is rendered in addition to the name of the person who renders it. The name of the party rendering the current accounts is mentioned after the name of the party to whom it is rendered.
METHODS OF CALCULATING INTEREST
There are three ways of calculating interest. They are as follows: By tables - Interest is calculated by tables from the due date of each transaction to the end of the period of the account on each item separately. The calculation can be done independently or the amount of interest of the particular amount for the number of days in question can be taken from interest tables. Interest columns on both sides of the account will then be totaled and the balance will be called out to the principal amount. By products - Under this method the amount of each item is multiplied by the number of days from the date to the end period and the products are placed in the product column especially provided on each side of the account. At the end of the period the products on each side to the current accounts are added up and balance. Interest is calculated on the balance of the product for one day in the amount column on that side whose product is greater. By interest number - This is merely a variation of the product method. Each product is divided by 100 and the quotient called interest number, is entered in the special column. The number columns are then balanced and interest on the balance of the number is extended into the account.
CALCULATION OF DAYS In recognizing the number of days for interest the date to the transaction is usually not taken into account. This means either the day on which the transaction is effected or the day to which the account is made up is not included.
MERCHANDISE TRADE
Merchandise trade represents exports and imports of commodities. The credit in the merchandise represents exports and debit represents imports. The net balance being the difference between exports and imports is known as the balance of trade. The values of exports are free on board prices i.e., excluding the cost of transportation from abroad. Imports represent cost insurance freight i.e. including freight and insurance paid for imports. However where freight and insurance on imports are paid separately to foreigners these are included under transportation and insurance.
INVISIBLES
Invisibles include services, transfers and investment income. It is titled invisibles to distinguish from merchandise trade also known as visible trade. Travel covers expenditure incurred by non-resident travelers during their stay in the country. It excludes international passenger services, which are included in transportation. Debit entries represent exchange sold for private and official travel. Transportation covers all receipts and payments on account of international transportation services except for the freight on imports invoiced cost insurance freight included under import payments. The credits include expenses of foreign transport companies and other receipts. The debits include expenses of payments to foreign transport companies. Insurance covers all receipts and payments relating to all types of insurance as well as reinsurance. Government not included elsewhere relates to receipts and payments on government account not included elsewhere as well as receipts and payments on account of maintenance of embassies and diplomatic missions and offices of international institutions such as UNO, WHO. Credits include allocations made for the US embassy expenditure. Miscellaneous items cover receipts and payments in respect of all other services such as agency services technicians and professional services technical know how royalties subscriptions for periodicals. Transfer of payments or unilateral transfers represent all receipts and payments without a quid pro quo. They include items like aid and grants received from or extended to foreign governments migrants transfer repatriation of savings remittances for family maintenance contributions and donations to religious organizations and charitable institutions. Investment income relates to remittances receipts and payments on account of profits dividends interest and discounts including interest charges and commitment charges on foreign loans including those on purchase from the international monetary fund.
BALANCE ON CURRENT ACCOUNT
What are important for decision making is not the absolute figures of exports or receipts and imports or payments but their difference which allows whether the country has earned or lost foreign exchange. Two important measures in this regard are
(a) balance of trade and
(b) balance of payments.
(a) Balance of trade refers to the net difference between the value of export and import of merchandise or the visible trade. When the aggregate exports of goods from the country during the period exceed its aggregate import the balance of trade is said to be favourable or excess or positive. If the imports go beyond exports the balance of trade is unfavourable or deficit or negative. Since imports and exports of a country seldom equal the balance of trade will not ordinarily balance. During any given phase the balance of trade will show either a favourable or an unfavorable balance.
(b) Balance of payments includes the foreign trade in its broad sense and includes not only visible trade but invisible items also. Thus this term is more comprehensive than balance of trade. In other words, balance of payments represents balance of trade plus balance on invisibles. It would be more appropriate to call this balance of payments on current account as it includes the net balance of all items included in the current account. As in the case of balance of trade the total amounts receivable and payable on current accounts do not balance and the balance of payments for a given period ends up in a favorable surplus or unfavourable deficit balance.
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