Question

The double-entry principle in the balance-of-payments

Answer 1

Answer:

The Current account is for goods and services.

The Financial account is for exchange of currencies and financial assets across countries.

Miguel, a U.S. resident, buys an HDTV set for  $2,500 and sends it to Mexico as a gift to his parents. DEBIT CURRENT ACCOUNT. CREDIT CURRENT ACCOUNT.

Miguel buys the good in the U.S. and then sends it so this falls under the current account alone.

Arielle, a French tourist, stays at a hotel in San  Francisco and pays $400 for it with her debit  card issued by a French bank. DEBIT FINANCIAL ACCOUNT. CREDIT CURRENT ACCOUNT.

The Financial account should be debited to show that currency is coming into the U.S. from outside the country and current account should be credited for services rendered.

A U.S. computer manufacturer purchases hard  drives from a Korean company, paying the funds  from its bank account in Korea. DEBIT CURRENT ACCOUNT. CREDIT FINANCIAL ACCOUNT.

Current account should be debited to reflect that goods are coming into the country but the financial account should be credited to show that currency is leaving the ownership of an American entity so it is passing out of American hands.