IX. THE USE OF INCOME ACCOUNT
B. Expenditures, acquisitions and uses
| 9.21. | The distinction between final consumption expenditure and actual final consumption depends on the general distinction between expenditures on, and acquisitions of, goods and services, a distinction that applies to other types of activities, such as production and capital formation, as well as consumption. The purpose of this section is to explain not only how expenditure differs from acquisition but also how both of them differ from the actual or physical use of goods and services. The explanation concentrates on consumption, but is also relevant to other types of activities. |
1. Expenditures
| 9.22. | Expenditures are defined as the values of the amounts that buyers pay, or agree to pay, to sellers in exchange for goods or services that sellers provide to them or to other institutional units designated by the buyers. The buyer incurring the liability to pay need not be the same unit that takes possession of the good or service. As already noted, it is common for government units or NPISHs to pay for goods or services that the sellers provide to households. Moreover, as explained below, the liability incurred by the buyer does not necessarily have to be settled by a payment of cash. |
The incidence of expenditures
| 9.23. | In the System, expenditures are attributed to the units which ultimately bear the costs as distinct from the units that may make payments to the sellers. The unit making the payment is usually also the one that bears the cost, but this is not always the case. For example, one unit may pay a seller acting as the agent of another unit to whom the ownership of the good is transferred. In this case, the agent provides a short-term credit to the buyer that is extinguished when the agent is reimbursed. Another example is that of a household which purchases a good or service that it retains itself but is subsequently reimbursed out of social security funds for some or all of the amount spent. In this case, the amount reimbursed is treated as expenditure incurred by the social security fund. |
The timing of expenditures
| 9.24. | Expenditures on goods or services occur at the times when buyers incur liabilities to sellers. These are usually the times when:
(a) The ownership of the good is transferred from the seller to the new owner; or
(b) The delivery of a service by the producer is completed to the satisfaction of the consumer. |
| 9.25. | The times at which sellers are actually paid for the goods or services they deliver are not necessarily the times at which the expenditures occur. As explained in chapter III, payments may either precede, or lag behind the actual deliveries of the goods or services sold. For this reason, the values of expenditures are measured by the values of the amounts receivable and payable at the times the expenditures are incurred. When payments are advanced or deferred there must be consequential changes in the financial assets or liabilities (other than cash) of the two units concerned at the time the change of ownership takes place or the service is delivered. |
| 9.26. | The precise moment at which the ownership of a good is transferred, or delivery of service completed to the satisfaction of the consumer, may not be easy to determine in practice in some cases. It may be perceived differently, or even disputed, by the two parties concerned. |
Imputed expenditures
| 9.27. | By mutual agreement between the buyer and the seller, the liability incurred by the buyer may be discharged by providing a good, service or asset other than cash in exchange. For example, goods or services may be exchanged for each other in barter transactions, or employees may provide labour in exchange for goods or services received as remuneration in kind. |
| 9.28. | Since the buyers do not pay cash, or expect to pay cash, values have to be imputed for the expenditures using the appropriate prices of similar goods or services sold for cash on the market. For example, workers receiving remuneration in kind are treated as making expenditures equal to the market value of the goods or services received (at producers' prices if produced by the employer or at purchasers' prices if bought by the employer), the costs of the expenditures being met out of the income they receive as remuneration in kind. In barter, both parties to a transaction must be recorded as making expenditures. As the market values of the goods or services bartered may not be the same, the values imputed for the expenditures should be a simple average of the estimated values of the goods or services exchanged, so that equal expenditures are recorded for both parties. |
| 9.29. | When institutional units retain goods or services produced by themselves for their own consumption or gross fixed capital formation, they clearly bear the costs themselves. They are, therefore, recorded as incurring expenditures whose values have to be imputed using the basic prices of similar goods or services sold on the market or their costs of production in the absence of suitable basic prices. |
| 9.30. | In the interests of brevity, an expenditure for which a value has to be imputed may be described as an "imputed expenditure". Strictly speaking, however, the imputation refers to the value of goods or services involved and not to the expenditure itself. |
Sales of existing goods as negative expenditures
| 9.31. | An existing good is a good which has already been disposed of to a user by the unit that produced or imported it, either in the current or a previous period. Most existing goods are used structures and machinery and equipment or second-hand consumer durables (see paragraph 9.38 below), but they may include some unused goods. When an existing good is resold, the amount received from its sale is recorded as negative expenditure on the part of the seller. Durable goods may have to be reclassified as a result of being resold; for example, the sale to a household of an automobile previously used by an enterprise for business purposes is recorded as negative gross capital formation and positive household final consumption expenditure. |
2. Acquisitions
| 9.32. | Goods and services are acquired by institutional units when they become the new owners of the goods or when the delivery of services to them is completed. The value of the goods or services acquired by an institutional unit or sector consists of the value the goods or services acquired through its expenditure plus the value of goods or services received through transfers in kind less the value of goods or services transferred to other units. Transfers in kind made to other units are recorded as negative acquisitions. This statement needs to be qualified to the extent that several categories of current transfers - i.e., current transfers within general government, current international cooperation, and miscellaneous current transfers - may include some transfers in kind. These transfers in kind are treated as if they were transfers in cash. Accordingly, the values of the goods or services received are actually recorded as expenditures by the institutional units or sectors that acquire them. |
| 9.33. | As described above, acquisition can refer to goods and services of any kind. Producers may, for example, acquire structures and machinery and equipment by their own expenditure (including imputed expenditure for own-account capital formation) and by capital transfers in kind. The System gives special recognition to the importance of acquisition for purposes of final consumption; it defines the total value of goods and services acquired for purposes of final consumption as actual consumption. |
| 9.34. | The times at which goods and services are acquired are when the change of ownership occurs or the delivery of the services is completed. Acquisitions are valued at the prices paid by the units that incur the expenditures. |
3. Uses
| 9.35. | Goods and services are used when institutional units make use of them in a process of production or for the direct satisfaction of human needs or wants. |
| 9.36. | In the case of goods, the distinction between acquisition and use is clear. Producers acquire goods which they may hold for varying periods of time before physically using them up in processes of production. Households may hold consumption goods before using them for the satisfaction of their needs or wants. Few goods are so perishable that they have to be used immediately. For example, most foodstuffs need not be eaten until some time after they have been acquired. |
| 9.37. | In the case of services, however, the distinction between acquisition and use may not be relevant in a practical sense. The situations of units to whom services are delivered are automatically affected by those services and no further action may be needed in order to benefit from them. |
Durable versus non-durable goods
| 9.38. | In the case of goods, the distinction between acquisition and use is analytically important. It underlies the distinction between durable and non-durable goods extensively used in economic analysis. In fact, the distinction between durable and non-durable goods is not based on physical durability as such. Instead, the distinction is based on whether the goods can be used once only for purposes of production or consumption or whether they can be used repeatedly, or continuously. For example, coal is a highly durable good in a physical sense, but it can be burnt only once. A durable good is therefore defined as one which may be used repeatedly or continuously over a period of more than a year, assuming a normal or average rate of physical usage. A consumer durable is a good that may be used for purposes of consumption repeatedly or continuously over a period of a year or more. |
Consumption as an activity
| 9.39. | The activity of consumption consists of the use of goods and services for the satisfaction of individual or collective human needs or wants. A consumption function that expresses utility as a function of the quantities of goods and services consumed describes the use of those goods and services rather than expenditures or acquisitions. In order to measure consumption as an activity, it would be necessary to adopt accounting procedures similar to those used in a production account, where a clear distinction is drawn between purchases of goods to be used in production and their subsequent use as inputs. |
| 9.40. | In practice, the System measures household consumption only by expenditures and acquisitions. This means that the only way in which the repeated use of durables by households could be recognized would be to extend the production boundary by postulating that the durables are gradually used up in hypothetical production processes whose outputs consist of services. These services could then be recorded as being acquired by households over a succession of time periods. However, durables are not treated in this way in the System. |
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