Trade in merchandise goods (tangible goods):

• The difference in values of imports and exports of a country is known as balance of trade.
• When a country’s import exceeds its export it is called negative balance of trade. If a country’s export exceeds its imports it is called positive balance of trade.

Balance of trade in Balance of payment:

• While writing accounts for Balance of Payments, receipts obtained by exporting items of trade are recorded as credit entry (i.e. a’+’ entry). Payments made for items imported are recorded as debit entry (i.e. a ‘-‘ entry).
• The sum total on this section of current account (i.e. the sum of credit’+’ entry and debit’-‘ entry; or say the difference of import and export) is called the balance of trade or simply trade balance.
• If the payments for merchandise imports (i.e.’-‘ entries) are greater than the receipts from merchandise exports (i.e.’+’ entries) then there is a deficit in the balance of trade. The vice versa situation is called surplus on the balance of trade.