Definition of Errors and Omissions Account, Overall Balance and Monetary Movements

As you have read in BOP and accounting principles that there are number and variety of transactions that occur in a period for which the balance of accounts is prepared and all these transactions are recorded as per double-entry accounting system. In principle, therefore, the net sum of all credit and debit entries should equal. In practice, however, this does not happen since errors and omissions occur in compiling the individual components of the balance of payments. The net effect of these errors and omissions (including differences in coverage, timing and valuation), are entered as unrecorded transactions. So, errors and omissions account is used to account for statistical errors and / or untraceable monies within a country. In practice, therefore, the unrecorded transactions, which pertain to the current, capital transfer and financial accounts, serve to ensure that the overall balance of payments actually balances.

Table details of the errors and omissions, overall balance and monetary movement.

Overall Balance

Overall balance is equal to the sum of total current account, capital account, errors & omissions.

Monetary Movements

The last element of the balance of payments is the official reserves account. A country’s official reserve consists of gold and foreign exchange (reserve assets) by official monetary institutions, special drawing rights (SDRs) issued by the International Monetary Fund (IMF), and allocated from time to time to member countries. It can be used for settling international payments between monetary authorities of the member countries, but within certain limitations. An allocation is a credit, where as retirement is a debit.

The foreign exchange reserves are held in the form of gold, foreign bank notes, demand deposits with foreign banks and other claims on foreign countries, which can readily be converted into foreign bank demand deposits. A change in official reserve account measures a country’s surplus or deficit on its current account and capital account transactions by netting reserve liabilities from reserve assets.