II. OVERVIEW
B. Main categories
| 2.18. | The SNA contains a number of classifications which in a sense constitute the skeleton of the System and permit various aspects of the questions raised above to be answered:
Institutional units and sectors (who?)
Transactions and other flows (what?)
Assets and liabilities (what stocks?)
Activities, establishments, products (other aspects of who and what?)
Purposes (what for?).
They are presented in turn. |
1. Institutional units and sectors
| 2.19. | The fundamental units identified are the economic units which are capable of owning assets and incurring liabilities on their own behalf. They can engage in the full range of transactions. These units are called institutional units. In addition, being centres of legal responsibility, institutional units are centres of decision-making for all aspects of economic life. In practice, some institutional units control others and thus in such cases autonomy of decision is not total and may vary over time. Legally independent holding of assets and liabilities and autonomous behaviour do not always coincide. In the System, preference is generally given to the first aspect because it provides a better way to organize the collection and presentation of statistics even if its usefulness is limited in some cases. |
Institutional sectors
| 2.20. | The institutional units are grouped together to form institutional sectors, on the basis of their principal functions, behaviour, and objectives:
Non-financial corporations: institutional units which are principally engaged in the production of market goods and non-financial services
Financial corporations: institutional units which are principally engaged in financial intermediation or in auxiliary financial activities
General government: institutional units which, in addition to fulfilling their political responsibilities and their role of economic regulation, produce principally nonmarket services (possibly goods) for individual or collective consumption and redistribute income and wealth
Households: all physical persons in the economy, with the institutional unit in the household sector consisting of one individual or a group of individuals. According to the criteria given for defining the institutional unit, the household of the owner of an
unincorporated enterprise in general includes this enterprise, which is not considered an institutional unit (except under certain conditions). The principal functions of households are the supply of labour, final consumption and, as entrepreneurs, the production of market goods and non-financial (possibly financial) services
Non-profit institutions serving households (NPISHs): legal entities which are principally engaged in the production of non-market services for households and whose main resources are voluntary contributions by households. |
| 2.21. | Each sector, except NPISHs, contains a number of sub-sectors (with various levels) distinguished according to a hierarchical classification (see chapter IV). A sub-sector comprises entire institutional units, and each institutional unit belongs to only one sub-sector. In addition, the distinction between public, national private and foreign controlled corporations and between various socio-economic groups of households is emphasized in the System in order to respond to policy concerns. |
Delimitation of the total economy and the rest of the world
| 2.22. | The total economy is defined in terms of institutional units. It consists of all the institutional units which are resident in the economic territory of a country. The economic territory of a country, although consisting essentially of the geographical territory, does not coincide exactly; some additions and subtractions are made (see chapter XIV). The concept of residence in the System is not based on nationality or legal criteria. An institutional unit is said to be a resident unit of a country when it has a centre of economic interest in the economic territory of that country - that is, when it engages for an extended period (one year or more being taken as a practical guideline) in economic activities on this territory. The institutional sectors referred to above are groups of resident units. |
| 2.23. | Resident units engage in transactions with non-resident units (that is, units which are residents of other economies). These transactions are the external transactions of the economy and are grouped in the account of the rest of the world. Strictly speaking, the rest of the world is the account of transactions occurring between resident and non-resident units, but it may also be seen as the whole of non-resident units that enter into transactions with resident units. So, in the System's accounting structure, the rest of the world plays a role similar to that of an institutional sector, although non-resident units are included only in so far as they are engaged in transactions with resident institutional units. Consequently, as far as coding of classifications is concerned, a specific item for the rest of the world is included at the end of the classification of sectors. |
2. Transactions and other flows
| 2.24. | Institutional units and their members fulfil various economic functions; that is, they produce, consume, save, invest, etc. They engage in various economic activities (agriculture, manufacturing, etc.) as entrepreneurs or wage-earners or suppliers of capital, or they are unemployed. In all aspects of their economic functions and activities, they undertake a great number of elementary economic actions. These actions result in economic flows, which, in addition to their specific nature (wages, taxes, fixed capital formation) create, transform, exchange, transfer or extinguish economic value; they involve changes in the volume, composition or value of an institutional unit's assets or liabilities. The economic value may take the form of ownership rights on concrete objects (a loaf of bread, a dwelling) or intangible assets (a film original) or of financial claims (liabilities being understood as negative economic value). In all cases, it represents a certain quantum of abstract economic value which is potentially usable to acquire goods or services, pay wages or taxes, etc. |
| 2.25. | Most economic actions are undertaken by mutual agreement between institutional units. They are either an exchange of economic value or a voluntary transfer by one unit to another of a certain amount of economic value without a counterpart. These actions undertaken by mutual agreement between two institutional units are called transactions in the System. The System also treats as transactions certain economic actions involving only a single institutional unit which are similar in nature to actions undertaken by mutual agreement by two different institutional units, such as own-account fixed capital formation. They are internal, or intra-unit, transactions. |
| 2.26. | However, not all economic flows are transactions. For example, certain actions undertaken unilaterally by one institutional unit have consequences on other institutional units(s) without the latter's consent. The System records such actions only to a limited extent, essentially when governments or other institutional units take possession of the assets of other institutional units, including non-resident units, without full compensation. In real life, unilateral economic actions bearing consequences, either positively or negatively, on other economic units (externalities) are much broader. However, such externalities are not recorded in the System. Also, human action may result in the transfer of natural assets to economic activities and the subsequent transformation of these assets. These phenomena are recorded in the System as economic flows, changing the amount of economic value. Moreover, non-economic phenomena, such as wars and natural disasters, may destroy economic assets, and this extinction of economic value must be accounted for. Also, the value of economic assets and liabilities may change during the time they are held as stocks, as a consequence of changes in prices. These and similar flows that are not transactions, which are called other economic flows in the System, are described in chapter XII. |
| 2.27. | The economic flows can be actual, observable flows or they can be built up or estimated for analytical purposes. Certain flows may be directly observed in value terms. This is the case for monetary transactions between two institutional units, such as a purchase/sale of a good or the payment of a tax. Other two-unit flows are observable but cannot be immediately valued. These flows include barter of goods and services or education services consumed by students and provided free of charge by government; a value in money terms has to be attributed to them. Both of these types of two-unit transactions may or may not involve a "quid pro quo"-that is, a flow in one direction is linked to a counterpart flow in the opposite direction. Barter is an example of a two-unit flow involving a quid pro quo; a social assistance benefit in cash is a two-unit flow that does not involve a quid pro quo. Another kind of flow involves only one institutional unit. They may be physically observable, as in the case of output, own-account consumption or capital formation, or destruction by natural catastrophes. A value has to be attributed to them (this may be fairly easy in certain cases, such as when output is mostly sold). Other intra-unit, or internal, flows may not be observable as such; accounting entries are then constructed for the sake of measuring economic performance correctly. This is the case for the consumption of fixed capital or the revaluation of assets and liabilities. Certain inter-units flows, like the reinvested earnings on direct foreign investment, are also accounting entries created for analytical purposes. Finally, some observable monetary transactions are not recorded as they are observed in practice because they are of a composite nature (nominal interest, total insurance premiums) or their legal nature does not correspond to their economic one (financial leasing). Consequently, for the System, they are split up into various components and/or their classification and routing is modified. |
| 2.28. | In modern market economies, most transactions are monetary and take place between different institutional units. They constitute the fundamental basis for valuing flows in national accounts. The relative importance of non-monetary transactions varies according to the type of economy and the objectives pursued by the accounting system. It is generally greater for less developed economies than for developed ones, in which, however, it is not negligible. |
Main types of transactions and other flows
| 2.29. | Elementary transactions and other flows are innumerable. They are grouped into a relatively small number of types according to their nature. The System's main classification of transactions and other flows includes four first-level types, with each subdivided according to a hierarchical classification. It is designed to be used systematically in the accounts and tables of the central framework and cross-classified with institutional sectors, industry and product, and purpose classifications. |
| 2.30. | Transactions in goods and services (products) describe the origin (domestic output or imports) and use (intermediate consumption, final consumption, capital formation or exports) of goods and services. By definition, goods and services in the System are always a result of production, either domestically or abroad, in the current period or in a previous one. The term products is thus a synonym for goods and services. |
| 2.31. | Distributive transactions consist of transactions by which the value added generated by production is distributed to labour, capital and government and of transactions involving the redistribution of income and wealth (taxes on income and wealth and other transfers). The System draws a distinction between current and capital transfers, with the latter deemed to redistribute saving or wealth rather than income (see chapter VIII). |
| 2.32. | Transactions in financial instruments (or financial transactions) refer to the net acquisition of financial assets or the net incurrence of liabilities for each type of financial instrument. Such changes often occur as counterparts of non-financial transactions. They also occur as transactions involving only financial instruments. Transactions in contingent assets and liabilities are not considered transactions in the SNA (see chapter XI). |
| 2.33. | Other accumulation entries cover transactions and other economic flows not taken into account before which change the quantity or value of assets and liabilities. First, they include consumption of fixed capital and acquisitions less disposals of non-produced non-financial assets. Then, they cover other economic flows of non-produced assets, such as discovery or depletion of subsoil resources or transfers of other natural assets to economic activities. They also cover the effects of non-economic phenomena such as natural catastrophes and political events (wars for example). Finally, they include holding gains or losses, due to changes in prices, and some minor items (see chapter XII). |
Characteristics of transactions in the System
| 2.34. | In order to provide more useful answers to the questions raised in the analysis of flows, some transactions are not recorded in the System as they might be directly observed. First, the System often uses categories which are more closely identified with an economic concept. For example, gross fixed capital formation, a sub-category of transactions in goods and services, is broader than the limited coverage thought of as "purchases of fixed assets". In order to be closer to an economic concept, it covers the acquisition of new and existing fixed assets, through purchases, barter transactions, own-account capital formation or investment grants received in kind, less the disposal of existing assets, through sales, barter transactions or investment grants made in kind. |
| 2.35. | Secondly, as the previous example shows, the System also often uses categories which are compacted, that is, are the result of combining a number of elementary transactions. "Changes in inventories", for example, is the difference between entries into and withdrawals from inventories and recurrent losses. The same netting happens for transactions in financial instruments. All transactions in an instrument held as an asset (or as a liability) are grouped under the heading of this instrument. The item "loans," for example, covers issuance of new loans, conversions, and redemptions or cancellations of existing loans. Finally, some categories of transactions in the System, such as distributive transactions concerning interest and net non-life insurance premiums, require an actual transaction to be split into parts. |
| 2.36. | Although monetary transactions have a basic role in the valuation of flows in the System, non-monetary transactions are also significant. They include flows of goods and services that take place between institutional units for which values have to be estimated and also some flows that are assumed to take place within units. It is often desirable, therefore, to show monetary transactions separately from non-monetary in the broad sense, with in-kind transactions as an additional sub-category. |
Complementary classification of transactions and other flows
| 2.37. | Since introducing all relevant distinctions throughout the classification of transactions and other flows would overburden the picture, the System provides a complementary classification to facilitate additional presentations and analysis. The complementary classification is not intended for regular use but for use when a more detailed analysis of certain accounts or of certain transactions is needed and when users need help in understanding the results. Moreover, it is not intended to limit the extension of national complementary classifications: the latter may indeed have a broader coverage, according to specific needs. |
| 2.38. | The complementary classification of transactions and other flows shows, first, a number of transactions in kind explicitly, such as own-account final consumption, barter transactions and wages and salaries in kind. Secondly, it shows the components of compacted flows, such as output and intermediate consumption. Also, it includes observed composite transactions, such as nominal interest or total insurance premiums, that are split into components for use in the System. Finally, it provides additional details and complements. As stressed in chapter XIX, countries are invited to use both the main and complementary classifications in a flexible way. In particular, they may want to subdivide some headings of the main classification to analyse specific transactions; the complementary classification provides a useful reference. |
| 2.39. | The main and complementary classifications are in annex V at the end of this manual. |
3. Assets and liabilities
| 2.40. | Assets and liabilities are the components of the balance sheets of the total economy and institutional sectors. In contrast to the accounts that show economic flows, a balance sheet shows the stocks of assets and liabilities held at one point in time by each unit or sector or the economy as a whole. However, stocks are connected with flows: they result from the accumulation of prior transactions and other flows, and they are modified by future transactions and other flows. Generally recorded at the point in time when an inventory is drawn up, they result in fact from a continuum of entries and withdrawals, plus some changes, either in substance or in value, occurring during the period a given asset or liability is held. Thus stocks and flows are closely related. |
| 2.41. | The coverage of assets is limited to those assets which are subject to ownership rights and from which economic benefits may be derived by their owners by holding them or using them in economic activity as defined in the System. Most consumer durables, human capital, culture as such and natural resources that are not capable of bringing economic benefits to their owners are outside the scope of assets in the System. |
| 2.42. | The classification of assets distinguishes, at the first level, financial and non-financial (produced and non-produced) assets (see chapter X). Most non-financial assets generally serve two purposes. They are primarily objects usable in economic activity and, at the same time, serve as stores of value. Financial assets are directly stores of value, although they may also fulfil other functions. |
4. Producing units and products
Producing units
| 2.43. | Institutional units such as corporations may produce various types of goods and services. These goods and services result from processes of production which may differ as regards materials and supplies consumed, kind of equipment and labour employed and techniques used. In other words, they may come from different economic activities. |
| 2.44. | To study production and production functions in detail, it is necessary to refer to more homogeneous units. The ideal solution would be to delineate, among institutional units, units which would be totally homogeneous - that is, engaged in only one economic activity - and observable. In practice, it is not always feasible to distinguish, inside multi-activity units, units of production engaged in a single activity and for which the necessary data are available so that some secondary activities that cannot be separated are covered. For that reason, the SNA uses for the detailed study of production a unit which, in addition to its principal activity, may cover secondary activities. As it is also necessary to give a picture of the distribution of production in space, this unit also has to be in a single location or nearby sites. This unit is the establishment. |
| 2.45. | Establishments that have the same principal activity are grouped in industries according to the International Standard Industrial Classification of All Economic Activities (ISIC, Revision 3). |
| 2.46. | Given the fundamental role played by the market in modern economies, the SNA distinguishes, as an essential feature of its structure, between establishments which are market producers, producers for own final use and other non-market producers. Market establishments produce mostly goods and services for sale at prices which are economically significant. Producers for own final use produce mostly goods and services for final consumption or fixed capital formation by the owners of the enterprises in which they are produced. Other non-market establishments supply most of the goods and services they produce without charge or at prices which are not economically significant. |
| 2.47. | There is a hierarchical relationship between institutional units and establishments. An institutional unit contains one or more entire establishment(s), either market, producers for own final use or other non-market. An establishment belongs to one and only one institutional unit. |
| 2.48. | For more refined analysis of the production process, use is made of an analytical unit of production. This unit, which is not always observable, is the unit of homogeneous production, defined as covering no secondary activities. These units constitute homogeneous activities. |
Products
| 2.49. | Goods and services, also called products, are the result of production. They are exchanged and used for various purposes: as inputs in the production of other goods and services, as final consumption or for investment. Here again the SNA makes a conceptual distinction between market, own final use and other non-market goods and services, allowing in principle any kind of good or service to be either type. In order to study transactions in goods and services in detail, the System uses the Central Product Classification (CPC). |
5. Purposes
| 2.50. | The concept of purpose, or function, relates to the type of need a transaction or group of transactions aims to satisfy or the kind of objective it pursues. Transactions are first analysed in the System according to their nature. Then, for certain sectors or kind of transactions, they are analysed from the expenditure side, by purpose, answering the earlier question "for what purpose?" In any analysis by purpose, the transaction or group of transactions is, in principle, the statistical unit to which a classification is applied. The classifications used in the System are described in chapter XVIII. |
| 2.51. | In the case of households, consumption expenditure and/or actual consumption are traditionally classified by purpose in household surveys and national accounts. Such analysis may cover other parts of household accounts, like fixed capital formation, interest paid and some transfers. All expenditure by NPISHs is broken down by purpose. |
| 2.52. | For government, the analysis by purpose applies to all transactions except, in most instances, to transactions in financial claims and interest on the public debt. |
| 2.53. | Normally, the analysis by purpose of market goods and services has to be made from the users' side. A market producer is normally not directly concerned with the purpose for which a purchase is made, even if the purpose is of interest for market research. For market producers, the problem is different: in some instances producers may incur costs (intermediate, labour, capital) which contribute to market prices but serve a purpose that is different from the one the market good or service itself is destined to satisfy. This is the case, for example, for expenditures for environmental protection or employee training. The System provides for additional analysis in this connection. |
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