Australia Yearbook - 2001

Chapter 30—International accounts and trade 1001
International accounts
Conceptual framework
Australia’s international accounts statistics, which
cover both the balance of payments and the
international investment position, are compiled in
accordance with international statistical standards.
In this edition of Year Book Australia the data are
compiled in accordance with the Fifth Edition of
the International Monetary Fund’s Balance of
Payments Manual (BPM5). The concepts of
residency, transactions, valuation and time of
recording are common to the balance of payments
and international investment position statistics.
The balance of payments accounts, which present
systematically the economic transactions between
Australia and the rest of the world, incorporate
four types of economic transactions. The first
involves the provision of real resources, i.e.
transactions in goods, services and income. The
second involves the provision of financial
resources, i.e. foreign financial assets and
liabilities. The third covers those one sided
transactions of a current nature (described as
current transfers) that are offsets to transactions
in current real or financial resources that are
undertaken without an exchange. Current
resources are not associated with, nor finance,
fixed assets. For example, famine relief, whether
in cash or in kind, would have its offset in current
transfers. The fourth type is capital transfers that
offset transactions which are undertaken, without
exchange, in fixed assets or in their financing
(such as development aid). For example,
migrants’ funds represent the shift of the
migrants’ net worth to or from Australia, and are
classified as capital transfers.
The first and third of these types of transactions
comprise the current account, while the second
type comprises the financial account. The fourth
type (capital transfers), together with a minor
item for the acquisition and disposal of
non-produced, non-financial assets (such as
patents), comprises the capital account.
The double entry accounting system is used for
recording balance of payments transactions. Under
this system, credit entries, which are shown with
no arithmetic sign, are used to record the
provision of real or financial resources. Credit
entries are therefore required for exports of goods
and services, and for income earned by residents
(a return for providing the use of financial capital
to non-residents, or for providing the labour of
Australian residents). Credit entries are also
required for providing financial resources to the
rest of the world, either as new liabilities (such as
issuing bonds), or through returning existing
foreign assets (such as selling foreign equity
securities to non-residents). Therefore, any credit
entry in the financial account will reflect either an
increase in Australia’s foreign liabilities (more
foreign debt or foreign ownership), or a decrease
in Australia’s foreign financial assets (such as a
run-down in foreign exchange reserves).
Conversely, debit entries, which are identified by a
minus sign (–), are used to record the provision by
the rest of the world of real or financial resources
to Australia, and are shown against imports of
goods and services, income earned from Australia
by non-residents, and financial transactions
involving either an increase in foreign financial
assets or a decrease in foreign liabilities.
Transactions in a double entry accounting system
are reflected in pairs of equal credit and debit
entries. For example, an export transaction for
which payment is received through the banking
system involves a credit entry for providing the
good to a non-resident and a debit entry for
being provided with foreign exchange assets due
as payment for the export. Any entries that are
not automatically paired in a transaction, i.e. for
which there is no ‘quid pro quo’, are matched by
special offsetting entries. Such offsetting entries
are made in the categories ‘current transfers’
(when offsetting the provision of current
resources such as food for famine relief) and
‘capital transfers’ (when offsetting the provision
of capital resources such as development aid to
build a new dam).
In principle, the net sum of all credit and debit
entries is zero. In practice, some transactions are
not measured accurately (errors), while others are
not measured at all (omissions). Equality between
the sums of the credit and debit entries is then
brought about by the inclusion of a ‘net errors and
omissions’ item which balances the accounts.
Transactions and other changes should be valued
in the balance of payments at market prices.
However, for practical reasons, transactions are
generally valued in the statistics at transaction
prices as this basis provides the closest practical
approximation to the market price principle.
Transactions and other changes recorded in the
balance of payments should be recorded at the
time of change of ownership (either actual or
imputed). For current account transactions, this
occurs when ownership of goods changes, or
services are provided. Investment income is
recorded on a full accrual basis, that is, when it is