Credits and debits
The balance of payments is a record of all financial flows between a country and the rest of the world. These flows are recorded as either credits or debits.
A credit item on the balance of payments is any financial flow that leads to money entering the country.
A debit item on the balance of payments is any financial flow that leads to money leaving the country.
Credit items will include any item where money enters the country. It is important to think of a credit as the money entering the country. For example, one of the principal credit items is exports. In the case of exports, the goods leave the country to be sold overseas, but the money enters the country. Exports are therefore a credit item. Credit items therefore include:
- Export receipts
- Current transfers into the country
- Capital transfers into the country
- Direct and portfolio investment into the country
In the same way, debit items will include:
- Imports payments
- Current transfers out of the country
- Capital transfers out of the country
- Direct and portfolio investment out of the country
The term net in the balance of payments accounts is used to refer to the net of credits and debits. e.g. if credits are $5,000 and debits are $4,000 then the net figure is +$1,000.