An Introduction to System of National
Accounts
- Basic Concepts
Lesson – I: Lecture
1
Introduction
Lesson I
Fifth Basic e-Learning Course on 2008 System of
National Accounts
May - July 2014
e 2008 System of National Accounts
May 2014 – July 2014
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Contents
2

Introduction


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
System of National Accounts
Economic Assets
Economic Flows
Accounting Structure
Transactions
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Lesson Objectives
3

At the end of this lesson the participant will be able
to:
 Apply
the SNA2008 in the compilation of economic
statistics
 Describe all accounts of the SNA 2008 and respective
balancing items
 Distinguish various economic transactions and their
valuation
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Introduction
System of National Accounts

SNA provides a framework for systematic presentation of
estimates of macroeconomic aggregates relating to
national income and wealth.

National accounts consist of a systematic presentation of
estimated money value of these and other such
macroeconomic aggregates relating to national income
and wealth.
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Introduction
Framework



5
The SNA is founded on the macro-economic framework that
gives a set of identities – relationships between different
flow and stock variables.
These identities form the basis of the SNA sequence of
accounts consisting of measures of economic flows and stocks
in monetary values.
A set of standard procedures of valuation is recommended
for attributing monetary values to flows and stocks.
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Introduction
System of National Accounts- Features

Fully integrated accounting system with accounting
rules
The total economy
 Institutional sectors
 Sub-sectors



Transaction accounts
Balance sheets
Transaction accounts and balance sheets are
integrated, together they constitute a closed
system
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SNA: Main Features
Transactions
Production
Income
distribution
Use of income
↓
Stocks
Saving
+
Capital transfers
Other
Flow s
↓
Opening
balance sheet
Capital formation
Stocks
Revaluatio
n
Closing balance
sheet
Nonfinancial
assets
Nonfinancial
assets
→
Financial assets
and liabilities
Net lending
Financial
transactions
→
→
Financial assets
and liabilities
Other
volume
changes
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Introduction
SNA - coordinating conceptual framework
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Introduction
SNA Main Uses and Users

Economic policy makers
Monitoring the economy
 Forecasting and simulation
 International comparisons, contributions to international
organizations, foreign aid


Business
Financial markets
 Market research




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Scientific researchers, teachers
General public
Statisticians
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Introduction
System of National Accounts-More than GDP
GDP and so much more!
 All flows within a time period between the
economic agents constituting the national
economy and their stocks.
 Framework for many economic statistics

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System of concepts, definitions, classifications, and
accounting rules used as standards, or framework, for
economic statistics in general
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Introduction
National Accounts – scope and coverage
National Accounts cover all economic flows like
 all sales and purchases of goods and services for
 consumption
 investment
 for further production
purchase of services of labour and assets like land, buildings,
machinery and equipment.
all other transactions involving monetary/non-monetary
payment, including transfers and purchase and sale of
financial assets.
and stocks of (economic) assets and liabilities.
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Presentation of National Accounts

National accounts data can be presented as:
 Monetary
values, Indices and Growth rates
 T-accounts and matrix presentation of accounts - Supply
and use tables and Input-output tables
 Tables with time series
 Graphs
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Economic Assets
Economic Assets




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In national accounts only the stocks of economic
assets are included.
National accounts considers only those resources
that have money value.
Human resources is not considered economic assets.
National accounts do not encompass all natural
resources – it includes only those which have
ownership rights.
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Economic Assets
Economic Assets - Definition
Store of value (money value or exchange value)
 over which ownership rights are enforced, individually or
collectively (like by government or community) and
 from which economic benefits can be derived by holding
it or using it in a production process.
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Economic Assets
Economic Assets - Classification
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Economic Assets
Household durables - Excluded




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Goods held for consumption by the households are not treated as
economic assets.
Though with well-defined ownership, these assets do not generate
economic benefits are not used for productive purposes. Thus, these
do not qualify as economic assets.
For example, refrigerators, other electrical equipments, furniture
and automobiles held by the households for their own use are not
treated as economic assets in the SNA.
Whereas automobiles owned by a company or refrigerators used
by restaurants are treated as assets in the SNA.
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Economic Assets
Examples


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Stock of grains held by households for its own consumption is not
treated as assets, since no economic benefit is derived by using
it in a production process.
Stock of grains held by a trader or rice milling factory is
treated as produced assets, since it is used for further production.
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Economic Flows
Economic Flows
All that bring about changes in stock of economic assets are
considered as economic flows
An economic flow reflects
a)
b)
c)
creation, transformation, exchange, transfer or
extinction or emergence of economic value or
change in composition or value of stock of economic
assets/liabilities.
The flows in category (a) are called ‘transactions’;
those in category (b) ‘volume change’ and
those in category (c) are caused by ‘changes in level
and structure of prices
•
•
•
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Circular Flow of Income
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Economic Flows
Economic Flows - classification
Economic flows
transactions
exchange:
with counter part
receipts for
payments
transfers:
without counter
part reciepts
other economic flows
due to change
in level and structure
of prices
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other changes
in volume
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Economic Flows
Two Main classes of Economic Flows


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Transactions – interaction by mutual agreement in involving
goods and services of economic value
 between institutional units
 Two kinds:
a. With counterpart – exchange
b. Without counterpart – transfers
 within institutional unit operating in different capacities
Other flows – change in value of assets and liabilities
without transaction caused by
 volume change
 level and structure of price
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Economic Flows
Links between Flows and Stocks
All economic flows bring about changes in the stocks of assets & liabilities.
The SNA provides for recording aggregates of all the flows in the accounts.
The stocks are recorded in the balance sheets.
The net effect of all the flows are reflected as changes between the closing
balance sheet and opening balance sheet.
•
•
•
Stock of assets and liabilities
(1 January 2008)
Economic flows:
Transactions
Other flows
(1 Jan - 31 December 2008)
Stock of assets and liabilities
(31 December 2008)
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The Main Structure of the Accounts
Current Accounts
 Accumulation Accounts
 Balance Sheets
Also:
 Several sub-accounts
 Goods and Services Account
 Rest of the World Accounts

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Current Accounts
I Production Account
Describes production process
II Distribution and Use of Income Accounts
II.1
Generation of Income Account
Describes components of value added
II.2 Allocation of Primary Income Account
Describes income allocation on the basis of claims
II.3 Secondary Distribution of Income Account
Describes reallocation through govt. and insurance
II.4 Use of Disposable Income Account
Describes use of disposable income/saving
II.4.b Use of Adjusted Disposable Income Account
Describes use of adjusted disposable income/saving
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Accumulation Accounts
III.1 Capital Account
Describes capital formation
III.2
Financial Account
Describes financial transactions
III.3.1 Other Changes in Volume of Assets
Describes impact of non-economic events
III.3.2 Revaluation Account
Describes changes in value resulting from price changes
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Balance Sheets

Balance Sheets
 Show
the value of the stock of assets and liabilities at
the beginning and end of an accounting period
 Balancing item: Net Worth
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Accounts and Balancing Items
Production Account
Value Added/GDP
Generation of
Income Account
Operating Surplus and Mixed
Income
Allocation of Primary
Income Account
Balance of Primary Incomes
National Income
Secondary Distribution
of Income Account
Disposable Income
National Disposable Income
Use of Disposable
Income Account
Saving
Capital Account
Net lending/Net Borrowing
Financial Account
Net Lending/Net Borrowing
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Economic Agents
National accounts comprise all transactions within a
time period between the economic agents constituting
the national economy and their stocks…..


Grouped by:
Institutional Units and Sectors,
 Establishment and Kind of Activity Units, and
 Industry/Economic Activities

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Main Institutional Sectors






Non-financial corporations
Financial corporations
General government
Non-profit institutions serving households
Households
And the
Rest of the World (ROW)
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Market Non-market Distinction
Market
Non-market Production
Production
Production
Other Nonfor Own
market
Consumption Production
Market
Producers
●
○
Non-market
Producers
○
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National Economy
National accounts comprise all transactions
within a time period between the economic
agents constituting the national economy
and their stocks.
The residency principle decides what agents
belong to the national economy!
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Domestic Economy
How do we distinguish the national economy from the
Rest of the World?
 on the basis of the residence of institutional units,
 Not on currency or nationality
Therefore, a Resident unit is:
An institutional unit with a “center of economic interest”
in the “economic territory” of the country
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Domestic Economy
Economic territory:
The most commonly used concept of economic territory
is the geographic area under the effective control of
a single government.
Center of economic interest indicated by:
 place
of production activity for a long or indefinite
period of time, generally over one year
 dwelling
 SNA 2008 update: center of predominant economic
interest
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Flows and Stocks
FLOWS
 Creation,
transformation, exchange, transfer,
extinction of economic value due to
 transactions
 other
events
 Refer
to a period of time
 Are recorded in the accounts
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Flows and Stocks
Economic Flows - classification
Economic flows
transactions
exchange:
with counter part
receipts for
payments
35
transfers:
without counter
part reciepts
other economic flows
due to change
in level and structure
of prices
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SIAP
other changes
in volume
35
Most flows arise from
transactions …
Transactions can be:
 Supply
(domestic production, imports)
 Use (consumption, capital formation, exports)
 Distributive (e.g., compensation of employees, interest,
dividends)
 Redistributive (e.g., taxes on income & wealth, social
security payments)
 Financial (e.g., deposits, shares, loans)
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…But some flows do not derive
from transactions
Other flows can affect:
 Volume
(e.g., economic appearance of assets,
depletion of natural assets, catastrophic losses)
 Prices (e.g., nominal holding gains or losses)
 Classification (e.g., demonetizing gold)
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Flows and Stocks
STOCKS:
 Positions
in, or holdings of assets and liabilities
 Refer to a point in time
 Are recorded on the balance sheets
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Stocks: Assets and Liabilities
ASSETS:

An entity functioning as a store of value
 over
which ownership rights are enforced, and
 from which economic benefits may be derived by its
owner by holding it, or using it, over a period of
time.
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Stocks: Assets and Liabilities

Include
Computer software and databases
 Known workable mineral deposits (used in economic
activity, created through mineral exploration)
 Research and development (as capitalized intellectual
property products or IC)


Exclude:
Human capital
 Environmental assets not used in economic activity

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CLASSIFICATION OF ASSETS

Non-financial assets

Produced assets

Fixed assets






Inventories
Valuables
Non-produced assets




Tangible fixed assets
Cost of ownership transfer of non-produced assets
Intellectual property products
Natural resources
Contracts, leases and licences
Goodwill and marketing assets
Financial Assets
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LINKS BETWEEN STOCKS AND FLOWS


For any transaction that involves assets or liabilities
an entry in the accumulation accounts must be
made.
Accumulation entries plus the entries made for the
other flows fully explain the differences between
the opening and closing balance sheets.
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LINKS BETWEEN STOCKS AND
FLOWS
 Capital
account transactions affect non-financial assets
 Financial
account records the creation, exchange, and
extinction of financial assets
 Other


changes in assets
Other changes in volume of assets accounts
Revaluation accounts
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Links between Flows and Stocks
All economic flows bring about changes in the stocks of assets & liabilities.
The SNA provides for recording aggregates of all the flows in the accounts.
The stocks are recorded in the balance sheets.
The net effect of all the flows are reflected as changes between the closing
balance sheet and opening balance sheet.
•
•
•
Stock of assets and liabilities
(1 January 2013
Economic flows:
Transactions
Other flows
(1 Jan - 31 December 2013)
Stock of assets and liabilities
(31 December 2013)
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Accounting Rules:
Accounting rules are needed to decide:
What transactions and stocks are included
 How they are included


Accounting rules are governed by
Economic relevance
 Consistency
 International and inter-temporal comparability


Not by

Feasibility, moral considerations or laws
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Nature of Accounting Rules:







What flows and stocks to include
Types of transactions
Classification of assets
How entries are made in the accounts
Time and basis of recording
Consolidation
Netting
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What stocks and flows are included in the
national accounts?

Main guidance for transactions is the
PRODUCTION boundary, which includes in the
national accounts
 All
goods
 Services supplied to other units
 Own-account services employing paid domestic staff
 Services of owner-occupied dwellings
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What stocks and flows are included
in the national accounts?

Main guidance for stocks is the ASSET
boundary, which includes holdings that
 Are
owned (individually or collectively)
 From which economic benefits are derived by using
or holding them over a period of time

The production boundary and the asset boundary
are closely linked
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Valuation of Transactions
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Types of Transactions
Transactions can be:
 Monetary versus non-monetary
 Internal versus external
 Bilateral versus unilateral
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Time and Basis of Recording
Cash

 Due for payment  / 
 Accrual


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Valuation: In General

General principle is market price
 Amount
that a willing seller will accept from a
willing buyer

If no market price is available:
 Price
comparable product
 Cost (plus)
 Discounted future earnings
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Valuation: Changes in Assets
and Liabilities
Replacement cost
 Historic prices



Value of Transactions to Exclude Holding
Gains and Losses!
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WHAT ARE MARKET PRICES?


Different perception of prices for same
transactions between users and producers
Differences relate to
Trade and transport margins
 Taxes and subsidies on products


In 2008 SNA two main prices
Basic prices
 Purchasers' prices


And to meet data problems also

Producers' prices
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Valuation: Taxes and Subsidies on Production and
Imports

Taxes and subsidies on products
 Value
added type taxes (V.A.T.)
 Taxes on imports/exports (duties)
 Other (e.g. excise, sales tax)

Other taxes and subsidies on production
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Valuation: Definitions of Market Prices
The basic price:
 Is the amount receivable by the producer from the
purchaser …
 For a unit of a good or service produced …
 Less any tax payable, plus any subsidy receivable on
that unit …
 As a consequence of its production or sale
It excludes any transport charges invoiced separately
by the producer
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Valuation: Definitions of Market Prices
(continued)
The producers’ price (net of deductible V.A.T.):
is the amount receivable by the producer from the purchaser
for a unit of a good or service produced less any V.A.T.
invoiced to the purchaser
 Excludes any transport charges invoiced separately by the
producer
 Excludes taxes (other than V.A.T.) on products
payable/receivable by wholesalers and retailers)
 Includes taxes (other than V.A.T.) less subsidies on products
payable/receivable by their producers
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Valuation: Definitions of Market Prices
(continued)
The purchasers’ price (net of deductible V.A.T.): is the
amount paid by the purchaser excluding any
deductible V.A.T. (or similar deductible tax)
The purchasers’ price includes any transport charges
paid separately by the purchaser to take delivery at
the required time and place
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
End of Lesson I
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