Components of Balance of Payments
Balance of Payments is generally grouped under the following heads
i) Current Account ii) Capital Account iii) Unilateral Payments Account iv) Official Settlement Account.

Current Account

“The Current Account includes all transactions which give rise to or use up national income.”
The Current Account consists of two major items, namely:
i) Merchandise exports and imports, and ii) Invisible exports and imports.
Merchandise exports, i.e., the sale of goods abroad, are credit entries because all transactions giving rise to monetary claims on foreigners represent credits. On the other hand, merchandise imports , i.e., purchase of goods from abroad, are debit entries because all transactions giving rise to foreign money claims on the home country represent debits. Merchandise imports and exports form the most important international transaction of most of the countries .Invisible exports, i.e., sales of services, are credit entries and invisible imports, i.e. purchases of services, are debit entries. Important invisible exports include the sale abroad of such services as transport, insurance, etc., foreign tourist expenditure abroad and income paid on loans and investments (by foreigners)in the home country form the important invisible entries on the debit side.

Capital Account

The Capital Account consists of short- terms and long-term capital transactions A capital outflow represents a debit and a capital inflow represents a credit. For instance, if an American firm invests Rs.100 million in India, this transaction will be represented as a debit in the US balance of payments and a credit in the balance of payments of India. The payment of interest on loans and dividend payments are recorded in the Current Account, since they are really payment s for the services of capital. As has already been mentioned above, the interest paid on loans given by foreigners of dividend on foreign investments in the home country are debits for the home country, while, on the other hand, the interest received on loans given abroad and dividends on investments abroad are credits.

Unilateral Transfers Account

Unilateral transfers is another terms for gifts. These unilateral transfers include private remittances, government grants ,disaster relief, etc. Unilateral payments received from abroad are credits and those made abroad are debits.

Official Settlements Accounts

Official reserves represent the holdings by the government or official agencies of the means of payment that are generally accepted for the settlement of international claims

A balance of payment can be defined as record of all the economic transactions by a country with other parts of world. Here is the list of various components of balance of payments –
1. Current Account – This account record all the imports and exports of goods and services between the countries. Exports are recorded as credits and imports are recorded as debits.
2. Capital Account – This account records the inflows and outflows of both short term as well as long term capital. In it capital inflows are recorded as credit and capital outflow are recorded as debit.
3. Reserve Account – It records any changes in foreign exchange reserves of the country. Any decrease in reserves is credited and increase in reserves is debited.

The current account
The current account is made up of the following payments:
Trade in goods
These items include the import and export of finished goods, such as cars, and computers; semi-finished goods, such as parts and components for assembly, and commodities, such as oil, tea and coffee.
Trade in services
Trade services include financial services, tourism, and consultancy.
Income from investment and employment
Investment income refers to any income made from investing abroad, and includes profits, such as those from business activities of subsidiaries located abroad; interest received from UK financial investments and loans abroad, and dividends from owning shares in overseas firms.
Payments to individuals who are residents of a country, and are employed in another, are also included in the current account. Investment and employment income are also known as 'primary income'.
Transfers
The final section of the current account includes transfer payments (transfers) arising from gifts between residents of different countries, donations to charities abroad, and overseas aid. Transfers are also known as 'secondary' income. Any deficit on the Current Account will be balanced by actions on the Financial and Capital Accounts.
The Capital and Financial Account
The Capital and Financial Account records the flows of capital and finance between the UK and the rest of the world. Types of flow include: 1. Real foreign direct investment (FDI), such as a UK firm establishing a manufacturing facility in China. Direct investment refers to investment in an enterprise where the owners or shareholders have some element of control of the business. 2. Portfolio investment, such as a UK investor buying shares in an existing business abroad. With portfolio investment, the investor has no control over the enterprise. 3. Financial derivatives are any financial instrument whose underlying value is based on another asset, such as a foreign currency, interest rates, commodities or indices. 4. Reserve assets are foreign financial assets that are controlled by monetary authorities - namely the Bank of England. These assets are used to finance deficits and deal with imbalances. Reserve assets include gold, Special Drawing Rights, and foreign exchange held by the Bank of England.
This process is often called official financing.
Net errors and omissions
In theory, the Capital and Financial Account balance should be equal and ‘opposite’ to the Current Account balance so that the overall Account balances, but in practice this is only achieved by the use of a balancing item called net errors and omissions. This device compensates for various errors and omissions in the balance of payments data, and which brings the final balance of payments account to zero.