BP03A Accounting Principles.

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BPM6 Accounting Principles
Excluding Time of Recording and Valuation
Course on Balance of Payments and
International Investment Position Manual
(BPM6)
IMF-PFTAC
Nadi
November 22-December 1, 2010
BP03a
Introduction
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
4/13/2015
Flows and Positions
Accounting System
Time of Recording of Flows (next session)
Valuation (next session)
Aggregation and Netting
Symmetry of Reporting
Derived Measures
Changes from BPM5 (this & next session)
2
Flows and positions
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
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
4/13/2015
Relationship between flows and positions
What are transactions?
Types of transactions
Rearranging of transactions for statistical
purposes
Other flows
Position at point in time
3
Relationship between flows and positions
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Flows (during a period)
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

Positions (IIP) are level of assets and
liabilities at a point in time
Change in IIP from period 0 to period 1

4/13/2015
= transactions (BOP) + other changes in assets
and liabilities (reconciliation items in IIP)
= Flows in period 1
4
Balance of Payments
Current account
Goods and services
Goods
Services
Primary income
Secondary income
Current account balance
Capital account
Credit
Debit
540
462
78
50
17
499
392
107
40
55
1
4
Net lending (+) borrowing (-)
(from current and capital account)
Financial account (by functional
category)
Total
Net lending (+) borrowing (-)
(from financial account)
Net
errors and omissions
4/13/2015
Balance
10
Net incurrence of
financial assets
57
Net incurrence
of liabilities
47
10
0
JAI Tunis/L4:5
International
Investment
Position
Opening
position
Transactions
(financial
account)
Other
changes in
volume
Revaluations
Closing
positions
1,274
57
0
15
1,346
Liabilities (by
functional
category)
805
47
0
7
859
Net IIP
469
10
0
8
487
Assets (by
functional
category)
4/13/2015
6
What are transactions?

Transactions are classified by the nature of the
economic value provided


Goods, services, primary & secondary income,
capital transfers, non produced non financial
assets, and financial assets and liabilities.
May include intra unit transactions (that are
considered to be analytically useful)

4/13/2015

e.g. transactions between a branch in one country and
its head office in another
Include illegal activities
7
What are transactions? Cont.

Take place between two institutions,

A resident and a non-resident
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

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Transactions involving financial assets and liabilities,
between residents and between non residents excluded
and included in reclassifications
By mutual agreement, or
By law (taxes and penalties)
May involve third parties

4/13/2015

Guarantors
Agents
8
Types of transactions

Exchanges and transfers
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

Monetary and non monetary

4/13/2015
An exchange - something of value provided by
something of equal value.
Transfer - some of value provided without
something of value provided in return.

Monetary - involves cash payments, or creation of
assets and liabilities
Non monetary – barter trade, goods and services
in kind
9
Rearranging of transactions

Rerouting,


Partitioning
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

4/13/2015
e.g. social contribution paid by employers to
government – incl. compensation of employees
Splitting interest/financial intermediation charges
Splitting financial derivatives from underlying
assets
Splitting goods, freight and insurances changes
10
Rearranging of transactions Cont.

Imputation





4/13/2015
Retained earnings of direct investment enterprises
Investment income held on technical reserves by
insurance corporations
Retained earnings of investment funds
Fiscal activity relating to government borrowing
or outlays undertaken by a non-resident
Implicit taxes and charges associated with
multiple exchange rate systems
11
Other flows

Other flows (essentially do not occur by
mutual agreement)

Volume changes




4/13/2015
Monetisation and demonization of gold
Commercial debt cancellation
Transfer of assets due to residency change
Revaluation of assets
12
Position at a point in time


4/13/2015
Financial assets have corresponding liabilities
Except for monetary gold
13
Accounting system

Based on broad book keeping principles


Double and quadruple entry


Let’s not get carried away – in BOP we are only
concerned with double (vertical) entry!
Types of accounting entries

4/13/2015
Peculiar some accountants might say!
Now this is important! – Learn it
14
Accounting system: Double entry (vertical)

Vertical double entry
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

For a transactor, each transaction and other flow
has a debit and credit entry
As we are concerned with only resident
transactors, the BOP may be described as a
vertical entries, or set of accounts
For positions, for each transactor,

4/13/2015
Assets = Liabilities + Net worth
15
Accounting system: Double entry (Horizontal)

Horizontal double entry

Refers to transactions between transactors, e.g. A
buys goods from B.
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
4/13/2015
A: goods debit, and B: goods credit
A: cash credit and B: cash debit
16
Accounting system - Quadruple accounting
Unit A
Unit B
A acquires
product from B
B provides
product to A
Vertical
double entry
bookkeeping
A makes
payment to B
B receives
payment from A
Horizontal
double entry
bookkeeping
JAI Tunis/L3:17
Accounting system: Types of accounting entries

Goods and services
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
Primary income and transfers
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

credit (disposal) and debit (acquisition)
Incurrence of assets and liabilities

4/13/2015
credit (income and transfers receivable)
debit (income and transfers payable)
Non produced non financial assets


credit (exports) debit (imports)

Increase in assets (debit) and liabilities (credit)
Decrease in assets (credit) and liabilities (debit)
18
Balance of Payments (three
column presentation)
Current account
Goods and services
Goods
Services
Primary income
Secondary income
Current account balance
Capital account
Credit
Debit
540
462
78
50
17
499
392
107
40
55
1
4
Net lending (+) borrowing (-)
(from current and capital account)
Financial account (by functional
category)
Total
Net lending (+) borrowing (-)
(from financial account)
4/13/2015
Net
errors and omissions
Balance
10
Net incurrence of
financial assets
57
Net incurrence
of liabilities
47
10
0
JAI Tunis/L4:19
Accounting system: Examples of entries

Sale of goods to a nonresident
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

Sale of shares for currency
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

Shares and other equity 50 (CR.—Reduction in
financial assets)
Currency 50 (DR.—Increase in financial assets)
A borrower receives a loan

4/13/2015
Exports 100 (CR.)
Currency 100 (DR.—Increase in financial assets)

Loan 70 (CR.—Increase in liabilities)
Currency 70 (DR.—Increase in financial assets)
20
Aggregation and Netting

Aggregates are summations




Gross recording (current and capital account)


4/13/2015
Of transactions (other flows and levels) within
standard components
Of standard components to broader levels
And are hierarchical
Credits and debits shown separately
Some special cases – merchanting and reverse
investment
21
Aggregation and Netting Cont.

Net recording (financial account)
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
Net is also used in some derived measures

4/13/2015
Debits deducted from credits
e.g., “net lending/borrowing”
22
Symmetry of reporting

Symmetry of reporting by counterparties is


This is important in


bilateral comparisons, global balances and
regional and global aggregates.
Symmetry is not always possibly

4/13/2015
important to ensure consistency, compatibility,
and analytical usefulness

Conceptually – functional classification
Micro level data
23
Derived measures

Are important analytical tools.
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


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
Balance on goods and services;
External financial assets minus external liabilities
Balance on trade in goods
Balance on trade in services
Balance on goods, services, and primary income
Current account balance
Net lending/ net borrowing:


– from current and capital accounts
– from financial account
4/13/2015
24

Net international investment position
Balance of Payments (three
column presentation)
Current account
Goods and services
Goods
Services
Primary income
Secondary income
Current account balance
Capital account
Credit
Debit
Balance
540
462
78
50
17
499
392
107
40
55
41
70
-29
10
-38
13
1
4
-3
Net lending (+) borrowing (-)
(from current and capital account)
Financial account (by functional
category)
Total
Net lending (+) borrowing (-)
(from financial account)
4/13/2015
Net
errors and omissions
10
Net incurrence of
financial assets
57
Net incurrence
of liabilities
47
10
0
JAI Tunis/L4:25
International
Investment
Position
Opening
position
Transactions
(financial
account)
Other
changes in
volume
Revaluations
Closing
positions
1,274
57
0
15
1,346
Liabilities (by
functional
category)
805
47
0
7
859
Net IIP
469
10
0
8
487
Assets (by
functional
category)
4/13/2015
26
Changes from BPM5

Transactions in external assets


Imputed transactions clarified and specified


Migrants transfers become volume changes
Bookkeeping conventions explained


4/13/2015
between two resident units or between two
nonresidents are treated as reclassification

vertical double-entry
horizontal double-entry
quadruple entry bookkeeping
27
Changes from BPM5 Cont.

The financial account uses the headings




The term “economic ownership” introduced
Income flows arising from reverse investment

4/13/2015
“net acquisition of financial assets”
“net incurrences of liabilities”
where the direct investment enterprise owns less
than 10 percent of the voting power of its direct
investor are also to be recorded on a gross basis
28
Changes from BPM5 Cont.



4/13/2015
All capital account transactions are recorded
on a gross basis
Currency union issues related to consolidated
regional international accounts are discussed
Symmetry of reporting and derived measures
are dealt with explicitly
29
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