Balance of Payments (BOP) records all monetary transactions between country and rest of world over period (usually year). Structure: Current account (goods, services, income flows, transfers), Capital account (investment flows, loans), Financial account (reserve changes). Current account: Exports (positive), Imports (negative), Trade balance (exports minus imports), Service balance (tourism, IT services, shipping), Primary income (investment returns, salaries abroad), Secondary income (remittances, aid). Capital/Financial account: Foreign Direct Investment (FDI, ownership stake), Portfolio Investment (stocks, bonds), Loans (bilateral, multilateral), Deposits. Reserve account: Change in foreign exchange reserves (negative if building reserves). Balancing: BOP always balances by definition (current plus capital/financial equals zero). Deficits: Current account deficit means more imports than exports; financed by capital inflows. Surpluses: Current surplus means excess exports; results in foreign asset accumulation. Sustainable deficits: Depend on investment returns on foreign capital and growth rate. Implications: Deficit may indicate competitiveness problems; surplus may restrict domestic consumption. Indian context: Persistent current account deficits in recent years, financed by inflows (FDI, remittances); oil prices and gold imports significant. ICAI focus: Components, deficit/surplus implications, sustainability. Exam tip: "BOP always balances"; current deficit = capital surplus; current surplus = capital deficit.