Current account:
As the name says, something is accounted for the current period of study. Usually a financial year. What do we do in accounting? Calculate inflows and outflows. Current account is exactly the same. It’s just the accounting for a country’s inflows and outflows.
Current account = balance of trade + Income (a.k.a Factor Income) + Transfer Payments.
Balance of trade – difference between the export and import of a country. It does not include the financial transfers or investments.
Income- Income earned on investments made by a country abroad like interest earned or dividends received. This will be accounted as (+) value, and paid to foreigners by a country will be accounted as (-) sign. (You should note that this will take only income out of investments. Original investments/capital investments will be accounted in a different head Capital accounts) The Income, also includes the infamous Remittances made by our Non residents… (Thanks to millions of SW geeks and labors from across the globe. – We might even say a malayali chai shop or someone working in a construction site, in Arab countries, indirectly influences the Moody’s rating for India J
Transfer of Payments- cash transfers from abroad like foreign aid, charity aid etc… Money spent on society directly than on economy.
So in short,
A current account deficit occurs when Imports are more than Exports (when a country’s total imports of goods, services and transfers is greater than the country’s total export of goods, services and transfers.)
A current account surplus occurs when Exports are more than Imports. (When a country’s total exports of goods, services and transfers is greater than the country’s total import of goods, services and transfers.)
We (India) are in a deficit situation every year… Might be we would have been in surplus before the East India Company or the Moguls ventured in 
In the next post , lets see about what is balance of payments…
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