Meaning of Balance of Payments Account (BOP Account). A balance of payment account is a systematic record of all economic transactions between residents of a country and the residents of foreign countries during a given period of time. BOP Account records a country’s all transactions with the rest of the world involving inflow and outflow of foreign exchange. Thus BOP Account is basically a flow of foreign exchange account.
Simply put, BOP account is a statement of country's sources and uses of foreign exchange in which main (i) sources are: exports, transfers and remittances from abroad, borrowings from abroad, foreign investments and (ii) uses are: imports, transfers to abroad, lending abroad and purchase of assets etc.
BOP account, like a typical business account, is based on double entry system which contains two sides, namely, Credit side and Debit side. Any transaction which brings in foreign exchange (currency) is recorded on credit side whereas any transaction that causes a country to lose foreign exchange is recorded on debit side. For example export is a credit item as it brings in foreign exchange whereas import is a debit item since it causes outflow of foreign exchange. Similarly borrowing from rest of world (ROW) is a credit item while lending to ROW is a debit item

Features of Balance of Payment Account:
(a) (i) It is a systematic record of all economic transactions between residents of one country and rest of the world.
(ii) It includes all transactions in goods (visible items), services (invisible) and assets (flow of capital) during a period of time.
(iii) It is constructed on double entry system of accounting. Thus every international transaction will result in credit entry and debit entry of equal size.
(iv) All economic transactions that are carried out with the rest of world are either credited or debited.
(v) In accounting sense total debits will always be equal to total credits. Thus balance of payments will always he in equilibrium. But in economic sense if receipts are greater than payments, there is surplus in BOP. Similarly, if payments are greater than receipts, there is deficit in BOP.
(b)    BOP account records a country’s all economic transactions with rest of world which involve inflow or outflow of foreign exchange.
(c)    Visible and Invisible items. Export and import of goods (like machinery, tea) are visible items because goods are visible. As against it, export and import of services (like shipping, banking, tourism) are invisible items since services cannot be seen.
Importance of BOP account. It is like a mirror which reflects economic health of a country. Persistent deficit in BOP is a cause of worry for the country. It has to be settled by short term loans or depletion of official reserve of foreign exchange or gold.

The various items which make up country’s Balance of Payments Account are listed in a simplified consolidated form in the above table. They are explained as under:
1.    Export and import of goods (Merchandise). The most straight forward way in which a country can acquire foreign currency is by exporting goods. These are called visible items because goods can be seen, touched and measured. This is shown by row (1) which indicates that the country has exported goods to a value of र 550 crores. In an analogous (similar) way, row (5) shows that the country has imported goods to a value of र 800 crores. These two rows describe the country's visible trade. Movement of goods between countries is known as visible trade because the movement is open and can be verified by custom officials at custom barriers.
2.    Services rendered and received. It includes both (a) non-factor income like income from shipping, banking, insurance, tourism, software services, and (b) factor income (investment income) like interest, dividends, profits on assets abroad. It should be noted that interest, dividends and profits, which citizens of a country earn on investment abroad are investment income and treated as factor income. Citizens of the country own land, bonds, shares, etc. abroad for which the foreigners who enjoy the services of this capital will have to pay for them. These payments will be registered under row (2) exports of services or invisible exports.
In a completely analogous way, row (6) covers payments which residents of the country in question make to foreigners for similar services. All these items describe country's invisible trade.
Balance of Invisibles. The balance of imports and export of services is called balance of invisibles since services are not seen to cross national borders. The invisible account includes (i) services like insurance, banking etc. (ii) investment income like rent, dividend and (iii) unilateral transfers like gifts, donations.

3.    Unilateral transfers. (Gifts, remittances, donations, indemnities, etc. from foreigners). The items in row (3) are called unrequited receipts because residents of a country receive ‘for free’. Nothing has to be paid in return at present or future for these receipts. These are like transfer payments. It includes both private and government transfers. Examples of this head are gifts received by residents from foreigners, remittances sent by emigrants (like Indians in Gulf Countries) to relatives, war indemnities paid by a defeated country, etc.
Note: In India unrequited or unilateral transfers are treated as a part of invisible trade.
Remember, sum total of the above-mentioned three components (merchandise, services and transfers) is called BOP on current account whereas the following 4th component comprises BOP on capital account.
4. Capital receipts and payments. (Borrowings, investment, capital repayments, sale of assets, changes in foreign exchange reserves). It records international transactions which affect the assets and liabilities of domestic country with ROW. Items (4) and (8) of the table given above, indicate changes in stock magnitudes and refer to capital receipts and payments. Government of a country may borrow (get loan) from another government; a firm may issue stocks abroad or a bank may float a loan in a foreign country. In all these instances, the country in question will acquire foreign currency and these transactions will be entered as credit items in row (4). Similarly, foreigners may acquire assets in the country with whose balance of payments they are concerned. Assets may be in the form of land, houses, plants, shares, etc. Changes in stock of gold or reserves of foreign currency are also included in Row (4). Analogously, if residents of the country in their turn were to acquire similar foreign assets, this would give rise to outflow of foreign currency and come as a capital transfer recorded as debit item in row (8).

Visible and Invisible items. Visible items of BOP account are those material goods which are seen crossing the border. These are actually recorded at ports. Examples of visible items are exports and imports of goods like machinery, rice, tea, cloth, etc. because they are visible to eyes. Again the balance of exports and imports of goods is called balance of visible trade. Invisible items of BOP account are those which are not seen crossing the borders. These are not recorded at ports. All types of services like services of shipping, banking, tourism, investment services and unilateral transfers are invisible items. The balance of exports and imports of invisibles is called balance of invisible trade.