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A Brief Guide On The Balance Of Payment (BOP)

There are some international transactions and payments that keep the flow of money into a country. The amount coming into the country and going out at a specific time needs to be calculated. We call this calculation for the flow of money the balance of payment or (BOP).

The businesses and organizations in a country contribute to the net income and profit of a country. Governmental organizations hire professional accountants and accounting firms to calculate these amounts and monitor the transactions. A country must monitor its transactions because these transactions and amounts are the key factors determining success and progress. Every country pays and earns some amount on their imports and exports, and it is crucial to know these exact amounts. We will learn why monitoring these transactions are crucial in later paragraphs of this article.

Keep scrolling down the article to get familiar with BOP basics and what are its key components that you must know.

What is BOP, and why is it important?

A country earns and spends some amount on its imports and exports. An individual, a business, and an organization are responsible for these transactions and amounts for a country. Trading of goods and services is the biggest reason behind these transactions, and every country’s government keeps a check and balance on these amounts. This transactional information is known as a BOP.  Hire the best accounting firms in Dubai to calculate and record these transactional amounts so that you can keep track of your country’s or a business’s performance based on these earnings from imports and exports.

Top three components of Balance of Payment (BOP)

Depending upon the type of the transaction and the inflow and outflow of the money, there are three major components of the balance of the payment. You can record these amounts with either a plus /minus sign according to their type in your records.

The following are the three types of components of the balance of payment.

  • Capital account
  • Financial account
  • Current account

Top 4 reasons for monitoring transactions for your business

The balance of payment is one of the methods and ways to monitor the transactions. Businesses and a country must keep monitoring their transactions because they are responsible for showing the origin of the money. A country and a business have transactions (debits/ credits) for both its imports and exports, and they must have a record of it.

The following are some benefits of monitoring transactions from a general perspective.

1. Maintaining records becomes easier

When you keep monitoring your transactions, whether it is for your imports or exports, you will be able to keep your records updated. These transaction records are why you keep your business running, and failure to maintain these records will lead to business failure. These transactions become more important to record when it is about dealing with external countries. The balance of payment enables a country to monitor their transaction records with the rest of the world and maintain their sheets for a time period.

2. Spotting financial crimes

When you keep monitoring the flow of your transactions, the chances of financial crimes reduces.  The people committing the crime will be well aware that they will be easily identified if they try to do any fraud. With transaction monitoring, you know well how the amount is coming and what sold goods and services are earning these amounts. With each transaction with other countries, you will be recording it in your records which strengthens your data accuracy, and you will also be able to know the amount you are making and investing.

3. Minimizing money laundering

Money laundering is one of the biggest issues the world is facing today. Governmental institutions and authorities, to eradicate this crime, are monitoring the transactions. Monitoring of transactions enables the government to know the origin of the money, and people cannot indulge in laundering by hiding illegal origins of the money through various transactions. You can hire the best bookkeepers to record your transactions and ensure that the money your business or country is generating is not illegal and has an authentic source of their generation.

4. Controlling transaction volumes

When you keep monitoring your transactions, it becomes easier to control and monitor your transaction volumes. Transaction volumes refer to the amount a country or a business makes through their transaction in a year. Calculating these amounts will enable you to know the earnings and investments from your imports and exports.

Financial records are your assets, and you must keep them accurate and safe!

It is very important to keep your financial records safe and up to date. One of the records you must keep updating is your transaction records. Talking in terms and perspective of this article, the government must make sure that they are keeping their transaction records safe and updated. To do so, they can consult the accounting experts to keep an eye on their transactions from the imports and exports.

Louis Rolen
Louis Rolen writes content about business and marketing which makes perfect sense. He’s best known for writing about marketing, skills development, technology and sales. Follow him for more details.


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