I. INTRODUCTION
B. Accounts and their corresponding economic activities
| 1.4. | The purpose of this section is to give a very brief summary of the main sequence of accounts in order to describe the main features of the System before discussing other related issues. It is impossible to do justice to the wealth of information contained in the System in a short section of this kind, and reference should be made to chapter II for a comprehensive overview of the System. Before summarizing the sequence of accounts, it should be noted that although it is necessary to present the accounts in a particular order, the activities they describe should not be interpreted as taking place sequentially in time. For example, incomes are generated continuously by processes of production, while expenditures on the outputs produced may also be taking place more or less simultaneously. An economy is a general equilibrium system in which interdependent economic activities involving countless transactions between different institutional units are carried out simultaneously. Feedbacks are continually taking place from one type of economic activity to another. |
1. The sequence of accounts
Current accounts
| 1.5. | These accounts record the production of goods and services, the generation of incomes by production, the subsequent distribution and redistribution of incomes among institutional units, and the use of incomes for purposes of consumption or saving. |
Production account
| 1.6. | The production account records the activity of producing goods and services as defined within the System. Its balancing item, gross value added, is defined as the value of output less the value of intermediate consumption and is a measure of the contribution to GDP made by an individual producer, industry or sector. Gross value added is the source from which the primary incomes of the System are generated and is therefore carried forward into the primary distribution of income account. Value added may also be measured net by deducting consumption of fixed capital. |
Distribution and use of income accounts
| 1.7. | These consist of a set of articulated accounts showing how incomes are:
Generated by production
Distributed to institutional units with claims on the value added created by production
Redistributed among institutional units, mainly by government units through social security contributions and benefits and taxes
Eventually used by households, government units or non-profit institutions serving households (NPISHs) for purposes of final consumption or saving. |
| 1.8. | The balancing item emerging from the complete set of income accounts is saving. The income accounts have considerable intrinsic economic interest in themselves. In particular, they are needed to explain the behaviour of institutional units as final consumers - that is, as users of the goods and services emanating from production for the satisfaction of the individual and collective needs and wants of households and the community. The balancing item, saving, is carried forward into the capital account, the first in the System's sequence of accumulation accounts. |
Accumulation accounts
| 1.9. | These are flow accounts that record the acquisition and disposal of financial and non-financial assets and liabilities by institutional units through transactions or as a result of other events:
The capital account records acquisitions and disposals of non-financial assets as a result of transactions with other units or internal bookkeeping transactions linked to production (changes in inventories and consumption of fixed capital).
The financial account records acquisitions and disposals of financial assets and liabilities, also through transactions.
A third account, the other changes in assets account, consists of two sub-accounts. The first, the other changes in volume of assets account, records changes in the amounts of the assets and liabilities held by institutional units or sectors as a result of factors other than transactions; for example, destruction of fixed assets by natural disasters. The second, the revaluation account, records those changes in the values of assets and liabilities that result from changes in their prices. |
| 1.10. | The link between the accumulation accounts and the income accounts is provided by the fact that saving - that is, disposable income that is not spent on consumption goods or services - must be used to acquire financial or non-financial assets of one kind or another, if only cash, the most liquid financial asset. When saving is negative, the excess of consumption over disposable income must be financed by disposing of assets or incurring liabilities. The financial account shows the way in which funds are channelled from one group of units to another, especially through financial intermediaries. Access to finance is a prerequisite for engaging in many types of economic activities. |
Balance sheets
| 1.11. | The balance sheets show the values of the stocks of assets and liabilities held by institutional units or sectors at the beginning and end of an accounting period. As already noted, the values of the assets and liabilities held at any moment in time vary automatically whenever any transactions, price changes or other changes affecting the volume of assets or liabilities held take place. These are all recorded in one or another of the accumulation accounts so that the difference between the values in the opening and closing balance sheets is entirely accounted for within the System, provided, of course, that the assets and liabilities recorded in the balance sheets are valued consistently with the transactions and other changes - that is, at current prices. |
2. Activities and transactions
| 1.12. | The accounts of the System are designed to provide analytically useful information about the behaviour of institutional units and the activities in which they engage, such as production, consumption and the accumulation of assets. They usually do this by recording the values of the goods, services or assets involved in the transactions between institutional units that are associated with these activities rather than by trying to record or measure the physical processes directly. For example, the accounts do not record the physical consumption of goods and services by households - the eating of food or the burning of fuel within a given time period. Instead, they record the expenditures that households make on final consumption goods and services or, more generally, the values of the goods and services they acquire through transactions with other units, whether purchased or not. Data on transactions provide the basic source material from which the values of the various elements in the accounts are built up or derived. The use of transactions data has important advantages. First, the prices at which goods and services are exchanged in transactions between buyers and sellers on markets provide the information needed for valuing, directly or indirectly, all the items in the accounts. Secondly, a transaction that takes place between two different institutional units has to be recorded for both parties to the transaction and therefore generally appears twice in a system of macroeconomic accounts. This enables important linkages to be established in the System. For example, output is obtained by summing the amounts sold, bartered or transferred to other units plus the amounts entered into, less the amounts withdrawn from inventories. In effect, the value of output is obtained by recording the various uses of that output by means of data on transactions. In this way, flows of goods and services can be traced through the economic system from their producers to their eventual users. Some transactions are only internal bookkeeping transactions that are needed when a single unit engages in two activities, such as the production and consumption of the same good or service, but the great majority of transactions take place between different units on markets. |
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