Interdependence Between Accounts
Balance of Payments
AO2
Syllabus requirement
Understanding the accounting identity: zero sum nature of the BoP where surpluses and deficits are matched.
Assessment objectives
AO2 Application and Analysis
Summary
This topic explains how the three components of the balance of payments (current account, capital account and financial account) are interdependent because of double-entry accounting: every international transaction is recorded as a credit and a debit. In practice, a deficit in one account must be financed by a surplus in another (or by errors and omissions), so understanding these relationships is essential for analysing a country’s external position and sources of foreign exchange.