Class 12 Macro Economics Notes · CBSE

Components of Current Account

Visible trade and balance of trade, invisible trade covering services, income and unilateral transfers, and current account surplus and deficit. CBSE Class 12 Macroeconomics notes

Last updated: 2 Sep 2026

Notes

What is the Current Account?

Current Account

Refers to an account which records all the transactions relating to export and import of goods and services and unilateral transfers during a given period of time. Current Account contains the receipts and payments relating to all the transactions of visible items, invisible items and unilateral transfers.

Key Point

Current Account includes those transactions which do not impact assets and liabilities position of a country in relation to rest of the world, i.e. Current Account transactions do not give rise to future claims.

Three Components of Current Account

A major part of transactions in foreign trade is in the form of export and import of goods (visible items). Payment for import of goods is written on the negative side (debit items) and receipt from exports is shown on the positive side (credit items). Balance of these visible exports and imports is known as Balance of Trade.

Trade Deficit

Excess of payments for imports of visible items over the value of receipts of exports of visible items.

Trade Surplus

Excess of receipts of exports of visible items over the value of payments for imports of visible items.

↑ Exports of goods → credit side (positive)↓ Imports of goods → debit side (negative)

'Invisibles' in BOP Account

In the Invisible Account, there are three broad categories: (1) Non-Factor Services such as travel, transportation, insurance and miscellaneous services; (2) Factor income, which includes Compensation of Employees and Investment Income; and (3) Unilateral Transfers, which do not involve any value in exchange.

Current Account Shows Net Income

Current Account Shows the Net Income

Current Account records all the actual transactions of goods and services which affect the income, output and employment of a country. So, it shows the net income generated in the foreign sector.

Current Account Surplus (CAS)

Credit items > Debit items → net inflow of foreign exchange → nation is a lender to the rest of the world.

Current Account Deficit (CAD)

Debit items > Credit items → net outflow of foreign exchange → nation is a borrower from the rest of the world.

Current Account Components Summary

Components of Current Account — Credit, Debit, and Net
Credit Items	Debit Items	Net Credit (Credit − Debit)
1. Visible Trade: Exports of goods	Imports of goods	Net exports of goods (Balance of trade)
2. Invisible Trade: Exports of Services	Imports of services	Net Exports of Services
3. Unilateral Transfers: Transfer Receipts	Transfer Payments	Net transfer Receipts
Current Receipts (1+2+3)	Current Payments	Current Account Balance

BOT vs Current Account

Balance of Trade vs Current Account
Aspect	Balance of Trade (BOT)	Current Account
Components	Includes only visible items.	Records both visible and invisible items.
Scope	A narrow concept, only a part of current account.	A wider concept, includes BOT.

Key Takeaways

Current Account records transactions relating to export and import of goods, services, and unilateral transfers.
The three components are: Visible Trade (goods), Invisible Trade (services — factor and non-factor), and Unilateral Transfers (one-way transactions).
Current Account does not give rise to future claims — it does not impact assets and liabilities position.
Current Account Surplus (CAS) indicates net inflow of foreign exchange; Current Account Deficit (CAD) indicates net outflow.
Current Account shows the net income generated in the foreign sector of the economy.