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Statistical Institute for Asia and the Pacific Economic and Social Commission of Asia and the Pacific

United Nations

An Introduction to System of National Accounts – Integrated Transaction Accounts

Lesson IV: INTEGRATED TRANSACTION ACCOUNT

Reading Materials

Third Intermediate-Level e-Learning Course on the System of National Accounts (2008 SNA)

May – July 2014

Integrated Transaction Accounts

Lesson IV

INTEGRATED TRANSACTION ACCOUNTS

Kitchen table account to basic SNA accounts

– Disaggregating KTA by Institutional Sectors

– RoW account

Extension of KTA to Integrated Transaction Accounts

– Modified kitchen table account

– Goods & services account

– Disaggregating the KTA further

– CFC in Transaction Accounts

– Balancing items

Rules of Accounting

– Valuation of transactions

– Time of recording _______________________________________

In this lesson, we will develop the basic structure of sequence of (transaction) accounts of the

SNA from the kitchen table account to illustrate the underlying accounting principles of the SNA

framework. The KTA for an economy will be disaggregated in two ways. First, we will disaggregate it

by the institutional sectors and rest of the world (RoW). Next, we will enlarge it by disaggregating the

transaction categories into more relevant groupings to match the SNA accounts.

The sequence of accounts developed in this lesson is only the structure of transaction

accounts of the SNA that helps measure what takes place in the economy, between which agents, and

for what purpose. Each individual account will be taken up in the following lessons.


The SNA is designed to provide information about the assets and liabilities of the institutional

sectors and the activities in which they engage, like production, consumption and the accumulation of

assets, in a useful analytical form. The KTA does not have the provision of recording such details. It

only provides the value of products bought and sold without distinguishing them by purpose.

What is more important is that the scope of KTAs is limited to only monetary transactions1.

All non-monetary transactions are excluded from the KTA. The KTA for an economy covers only the

1 A monetary transaction is one in which one institutional unit makes a payment (receives a payment) or incurs a liability (receives an asset) stated in units of currency in exchange for goods and (factor and non-factor) services. [2008 SNA, 3.55]

e-Learning Course 2014 Intermediate-Level 2 Reading material


monetary transactions concerning purchases and sales of goods and services, payments and receipts of

primary income and transfers, and the financial transactions (changes in financial assets and

liabilities). The SNA, on the other hand, captures economic flows of all kinds, both monetary and non-

monetary transactions. All monetary transactions are between two units. There are transactions in the

SNA framework that do not involve two institutional units. For instance, recall that services of owner-

occupied dwellings are produced and consumed by the same units – the households living in owned

houses. The SNA sequence of accounts provide the aggregates for identifying the activities of

analytical interest and capturing the transactions relevant to one stage or another of the process by

which goods and services are produced and ultimately consumed.

The KTAs can, however, be extended to obtain the integrated economic accounts, i.e. the full

sequence of transaction accounts for institutional sectors, the RoW and the total economy. We will do

this first by disaggregating the KTA by institutional sectors and then including the non-monetary

transactions. To include the non-monetary transactions we have to include output of all kinds of

production and disaggregate the four transaction categories into further sub-categories relevant for

economic analysis.

Disaggregating KTA by Institutional Sectors

The KTA for an institutional sector can be, in principle, obtained by aggregating the KTAs of

its individual units. The sectoral KTAs can be presented by subdividing the columns of Table 3.2 (in

Lesson III) to introduce five institutional sectors and the RoW for the four categories of transactions.

Table 4.1 is an example of sectoral KTAs.

As demonstrated in Lesson II, all the transaction identities hold good for the total economy,

i.e. for the aggregate KTA of all residents of the economy. We will verify this in the following

paragraphs, from the last three columns of Table 4.1. Also, recall that all the transaction identities

hold good for each individual institutional sector of the economy. From Table 3.1, however, only the

last of the four identities, i.e.

Change in liabilities + sub-total: non-financial: resources-side

≡ Change in financial assets + sub-total: non-financial: uses-side

can be verified for the individual institutional sectors as well as the RoW. For example, the KTA for

the non-financial corporate sector shows

sub-total: non-financial, resources-side (978)

+ change in financial liabilities (92)

= sub-total: non-financial, uses-side (924)

+ change in financial assets (146)

= 1070.

Similarly, we can see from Table 3.1, it is satisfied by the KTAs of all the other institutional sectors.



Table 4.1: Sectoral Kitchen Table Account and Transactions with RoW

Transaction category NFC FC GG HH NPISHs Total economy

RoW total

Resources

1. Sold products 847 155 7 248 2 1259 256 1515

2. Received income 131 75 26 157 11 400 65 465

3. Received transfers 0 0 3 0 1 4 2 6

Sub-total: non-financial 978 230 36 405 14 1663 323 1986

4. Change in liabilities 92 57 27 4 4 184 51 235

Total (= sub-total + item 4) 1070 287 63 409 18 1847 374 2221 Uses

1. Bought products 707 112 23 392 1 1235 280 1515

2. Paid income 215 151 29 7 2 404 61 465

3. Paid transfers 2 1 0 2 0 5 1 6

Sub-total: non-financial 924 264 52 401 3 1644 342 1986

4. Change in financial assets 146 23 11 8 15 203 32 235

Total (= sub-total + item 4) 1070 287 63 409 18 1847 374 2221 Note that NFC: non-financial corporations; FC: financial corporations; GG: general government

HH: households; NPISHs: non-profit institutions serving households

RoW Account

The rest of the world (RoW) account covers transactions between resident and non-resident

institutional units. This is presented from the viewpoint of the rest of the world. In Table 4.1, ‘sold

products’ of the RoW represent imports of goods and services (256) to the domestic economy and a

resource for the RoW. Likewise, ‘bought products’ of the RoW (284) represent exports of the domestic

economy and a use of RoW.

For an economy, the institutional units that are resident abroad and have some transaction

with the residents form the RoW. The ‘total economy’ consists of all the institutional units which are

resident of the economy. In the accounting structure, the RoW is treated as if it is another institutional

sector. Thus, a resource for the RoW is a use for the total economy and vice versa. Thus, ‘paid

income’ and ‘paid transfers’ of the RoW are respectively ‘received income’ and ‘received transfers’ of

the domestic economy. Table 3.1 shows that, all the first three identities relating to non-financial

transactions, viz.

1. Value of products sold + imports ≡ Value of products purchased + exports

2. Primary income receivable from domestic units & RoW

≡ Primary income payable to domestic units & RoW

3. Transfers payable from domestic units & RoW

≡ Transfers receivable to domestic units & RoW



are satisfied for the total economy. These hold good for the individual sectors as well, only they

cannot be verified from the information given in the table. [Also see Box 4.1: External transactions in

the SNA]

Box 4.1: External Transactions in the SNA

In the SNA, the RoW accounts are not presented separately. But, the entries for the flows

involving the RoW are necessary to balance each of the income accounts in the sequence of

accounts. For example, the difference between GDP and GNI results from transactions of

primary income between the residents and the RoW, which are included in both uses- and

resources-sides of allocation of primary income account. There are no entries for flows

involving RoW in the production account and generation of income account because the use

made of the goods and services in the RoW is not relevant for the domestic economy. For the

same reason, there are no entries involving the RoW for intermediate or final consumption or

for fixed capital formation (except in rare cases for acquisition and disposal of non-produced

assets).

The following are the RoW-related entries normally appearing in the SNA sequence of

accounts:

• Entries for imports and exports form part of the goods and services account.

• Entries for transactions of primary income - compensation of employees and property

income – in the allocation of primary income account.

• Entries for transfers: current transfers in the secondary distribution of income

account and capital transfers in the capital account.

• Entries for transactions in financial assets and liabilities in the financial account.

In the SNA sequence of transaction accounts, there is no place for recording balancing items

of the RoW account. But, two of the balancing items of Balance of Payment accounts

(BPM6) are inbuilt in the SNA sequence of accounts. They are:

» external balance on goods and services, which is the difference between imports and

exports.

» current external balance which is the sum of all resources from RoW less all uses

going to RoW, including imports and exports. This corresponds to savings of the

RoW in the use of income accounts.




The KTAs, presented in Table 4.1, provide a broad overview of only the monetary

transactions relating to productive activities, use of produce and distribution & redistribution of

income generated from production. For the analysis of the economic process in an economic territory,

the information contained in KTAs is far from enough. It covers only the monetary transactions and

does not give complete information on the most important economic flows like production, income,

consumption and capital formation. Thus, the KTA needs to be extended as follows:

– first by including the non-monetary transactions,

– second by breaking down use of products into its components and

– third by breaking down (primary) income into its components.

– fourth by distinguishing current and capital transfers.

What follows is an extension of the economy-level KTA to the basic structure of the SNA transaction

accounts.

Modified Kitchen Table Accounts

The first category of transactions appearing in the KTA relates to sale and purchase of

products (goods & services). The SNA defines goods and services as always being a result of

production, either domestically or abroad, in the current period or in a previous one. The KTA also

includes purchase and sale of non-produced assets, since it covers all monetary transactions. First,

note the coverage of resources- and uses-sides of this category of entries in the KTA.

On the resources-side, the first category of entries in KTA covers sales of:

A. domestic output,

B. imported goods & services,

C. non-produced non-financial assets and

D. used (second-hand) capital goods and used durables (meant for household

consumption).

On the uses-side, it covers purchase of:

A. products for final consumption by the households, general government and NPISHs,

B. products for intermediate consumption,

C. capital formation and

D. exports.

For the rest of the discussion, we will ignore the entries of ‘D’ kind on the resources-side. For an

institutional unit, SNA includes these either in final consumption (for used household durables) or

exports or in capital formation (for capital goods of enterprises) on the uses-side, with a negative sign.

For the aggregated accounts at the economy level, the entries of ‘C’ kind on resources-side can also

be ignored for the present, since external transactions of non-produced non-financial assets (such as



land and other natural resources, long-term contract & leases and goodwill and marketing assets) are

rather rare. For the resident-to-resident transactions of non-produced non-financial assets, the entries

would be the same on both sides of the economy-level KTA.

Inclusion of non-monetary transactions in the KTA: In addition to the monetary transactions

covered in entries of ‘A’ kind on the resources-side, production boundary includes within-unit

transactions of goods & services, such as production for own final use, and non-market production by

general government and NPISHs. The value of output relating to these within-unit transactions should

also be included in the uses-side, either in ‘A’ or in ‘C’ kind of entries. Recall that additions to and

withdrawals from inventory is also included in the entry of ‘C’ kind on the uses-side.

With the inclusion of these non-monetary transactions, the ‘A’ in the first category of

transactions in the resources-side of KTA becomes the same as gross value of output (GVO) as defined

in the SNA. Likewise, the ‘A’, ‘B’ and ‘C’ in the uses-side will be the same as respectively final

consumption, intermediate consumption and capital formation as defined in the SNA.

Table 4.2 is recast from Table 4.1, after having included all the non-monetary transactions

relating to supply and use of products, except the CFC. For the purpose of illustrating how the basic

structure of the SNA transaction accounts are built on money transactions, we will for the time being

ignore the CFC.

Table 4.2: Modified Kitchen Table Account and Transactions with RoW

Uses Resources

RoW Total economy

Transaction category Transaction category Total economy

RoW

280 1301 1. Use of products 1. GVO 1325

870 for IC Products sold 1259 256

408 for final consumption For own use 23

23 for capital formation Non-market 43

61 404 2. Paid income 2. Received income 400 65

1 5 3. Paid transfers 3. Received transfers 4 2

342 1710 Sub-total: non-financial Sub-total: non-financial 1729 323

32 203 Change in financial assets 4. Change in liabilities 184 51

374 1913 Total (= sub-total + item 4) Total (= sub-total + item 4) 1913 374

Comparing Tables 4.1 & 4.2, it is seen that the entry against products sold has remained

unchanged, only the entries ‘for own use’ (23) and ‘non-market’ (43) are included in the resources-

side. On the uses-side, instead of only the monetary transactions, all kinds of uses of products are

included and classified according to the kind of use. Thus, in Table 4.2, the uses-side entry (1301) is

higher by 66 (= 23 + 43) than the corresponding entry (1235) in Table 4.1.



Box 4.2: Non-monetary Transactions

Transactions (as recognized in the SNA) which do not involve any money flow are non-monetary transactions.

Barter transactions are those for which payment is made in kind in exchange of goods & services received. Being insignificant in presence in today’s world, it is not discussed in this note. [refer 3.79 & 3.125 of 2008 SNA for recommended treatment].

Payments in kind occur in the following forms: • Remuneration in kind to employees like mid-day meals and accommodation provided to

employees by the employer. • Payment of other forms of factor compensations in kind like share of crops received by

the landlord as rent on land.

Transfers in kind include gifts, charitable contributions and social transfers in kind. Issues relating to social transfers in kind are discussed in some more detail later in Lesson VI.

Measuring the value of intra-unit transactions is necessary to get a fuller view of production. Production for own final use consists of

• own-account capital formation like a dwellings built by the households for themselves and putting finished products into the inventory (recorded as part of changes in inventory)

• production for own consumption such as subsistence farming • non-market production by general government and NPISHs for which they themselves are

treated final consumers.

In the SNA, the non-market output is treated as social transfers in kind made to the households. Issues relating to social transfers in kind are discussed in some more detail later in Lesson VI.

Production for own final use includes production of goods & services by households for their own

final consumption and fixed capital formation by the owners of the enterprises.

Usually, national accountants compile the estimates of values of monetary transactions from the statistics produced by others in the national statistical system. The task of estimating the values of non-monetary transactions is solely the role of the national accountants.



What is important to note is that all these changes do not affect the underlying money-balance

identity. The totals on both sides are still equal, owing to the principle of double-entry adopted for the

account. However, for the first transaction identity, viz.

Value of products sold + imports ≡ Value of products purchased + exports

the inclusion of non-monetary transactions on the resources-side has to be balanced by an equal

amount in the uses-side.

Goods & services account

Before proceeding further with the extension of the KTA to the SNA accounts, it is necessary

to note that the GVO of production ‘for own use’ by the units is included in either ‘final consumption’

or ‘capital formation’ of the same units. Further, the GVO of non-market production by the general

government and NPISHs is treated (by convention) as being consumed entirely by themselves. Thus,

with these extensions of coverage in the first category of entries in the KTA, the first transaction

identity:

Value of products sold + imports ≡ Value of products purchased + exports

gets modified to:

Value of products sold + value of output of production for own final use + output of non-

market production (of general government and NPISHs) + imports (M)

≡ intermediate consumption (IC) + final consumption expenditure of households, general

government & NPISHs + gross capital formation (GCF) + exports (X)

i.e. GVO + M ≡ IC + GFCE + PFCE + GCF + X

Recall that this is same as the commodity balance identity reviewed in Lesson I.

The commodity balance identity or product balance identity represents the most fundamental

relationship used in the SNA, which in fact states that:

goods and services produced in the economy must be consumed, used for capital formation

or exported while all goods and services used within the economy must be produced in the

economy or imported.

The goods and services account - founded on this identity - is thus the most basic account of the SNA.

The goods and services account of an economy is obtained by drawing up the product balance

for all goods and services in the economy. The entries of the goods and services account are the most

wanted macro-economic aggregates for economic analysis, like gross value of output, imports,

intermediate consumption, final consumption, capital formation and exports. After making suitable

adjustments for taxes and subsidies on products and import duties, the GDP can also be derived from

this account.



The modified KTA presented in Table 4.2 can, in fact, be recast into the goods & services

account of an economy as the one presented in Table 4.3.

Table 4.3: Goods and Services Account

Uses Resources

870 Intermediate consumption Output (at market prices) 1325

408 Final consumption expenditure GVO at basic prices 1199

23 Gross capital formation Taxes less subsidies on products 126

280 Exports Imports (including import duties) 256

Imports at f.o.b. 230

Import duties 26

1581 Total uses Total resources 1581

Disaggregating the KTA further

Now, we will disaggregate the second category of entries in the KTA, viz. payment and

receipt of income. Together with the third category, these are referred to as distributive transactions

and relate to distribution and redistribution of income generated from production in the domestic

economy. The second category – payment and receipt of income – consists of entries by which the

value added generated by production is distributed to labour, capital and government. The third

category – payment and receipt of transfers - consists of entries involving the redistribution of

income and wealth (taxes on income and wealth and other transfers).

The entries in the second category include payments and receipts of primary income and

production taxes (less subsidies). To match the entries included in the allocation of primary income

account of the SNA, this category of entries is split into: compensation of employees, property income

and production (t-s). For the third category, the SNA makes a distinction between current and capital

transfers. A fuller discussion on transfers is included in Lessons VI and VII.

What is important to note in the present context is that capital transfers redistribute wealth but

leave saving unaffected. They include, for example, capital taxes and investment grants. All the other

transfers are described as current transfers, which redistribute income and affect savings. They

include, for example, taxes on income and social benefits.

With the disaggregation of the third category, the modified KTA can be further modified as

illustrated in Table 3.4 in Box 3.2. We can now obtain the main structure of the SNA sequence

accounts by regrouping the entries in the resources- and uses-side shown in Table 3.4. The re-

grouped entries, as indicated, can be plugged into the main structure of the SNA accounts presented in

Table 3.5 in Box 3.2.


Box 4.3: KTA to Integrated Transactions Accounts of the SNA

Table 4.5: SNA Sequence of Transaction Accounts for total economy – in brief Uses / changes in assets Resources/changes in liability & net worth

Production Account 870 Intermediate consumption GVObp 1199

Products sold (at basic price) 1133

For own use 23 Non-market 43 (t-s) on products & import duties 126

455 B.1 GDP Generation of Income Account

153 Compensation of employees B.1 GDP 455 130 Production (t-s) & import duties 172 B.2 OS + B.3 MI

Allocation of Primary Income B.2 OS + B.3 MI 172 Compensation of employees 152

121 Property income Property income 118 Production (t-s) & import duties 130

451 B.5 GNI Secondary Distribution of Income Account

B.5 GNI 451 3 Current transfers paid Current transfers received 3

451 B.6 GNDI Use of Disposable Income Account

B.6 GNDI 451 408 Final consumption 43 B.8 Gross savings

Capital Account B.8 Gross savings 43

2 Capital transfers paid Capital transfers received 1 23 Gross Capital formation 19 B.9 Net lending / borrowing

Financial Account 203 Net acquisition of financial

assets Net incurrence of liabilities 184

B.9 Net lending / borrowing 19

Table 3.4: Re-modified Kitchen Table Account and Transactions with RoW

Uses Resources

RoW

Tot

al

econ

omy

Transaction category Transaction category

Tot

al

econ

omy

RoW

280 1301 1. Use of products 1. GVOmp 1325

x 870 Intermediate consumption

Products sold (at basic price) 1133 256

x 408 Final consumption For own use 23 x

x 23 Capital formation Non-market 43 x

(t-s) on products & import duties 126 x

61 404 2. Paid income 2. Received income 400 65

59 153 Compensation of employees

Compensation of employees 152 60

2 121 Property income Property income 118 5

x 130 Production (t-s) & import duties

Production (t-s) & import duties 130 x

1 5 3. Paid transfers 3. Received transfers 4 2

1 3 Current transfers paid Current transfers received 3 2

0 2 Capital transfers paid Capital transfers received 1 0

342 1710 Sub-total: non-financial

Sub-total: non-financial 1729 323

32 203 4. Change in financial assets 4. Change in liabilities 184 51

374 1913 Total (= sub-total + item 4) Total (= sub-total + item 4) 1913 374

Box 3.2 illustrates the regrouping of entries in the KTA (Table 3.4) in correspondence with the

SNA sequence of transaction accounts (Table 3.5). The colours of the cells indicate the

correspondence between the two tables. Note that, the entries on resources- and uses-side of the KTA

are also the entries on the respective sides of the SNA accounts. The correspondence between the two

tables is indicated below:

Resources Side

KTA entries SNA Account Monetary transactions: Products sold

Products sold (at basic price),

Production (t-s) & import duties Production Account

Extensions: non-monetary transactions Output of production for own use

Output of non-market production. Production Account

Received Income Compensation of employees

Property income

Production (t-s) & import duties Allocation of Primary Income

Transfers Current transfers received Secondary distribution of Income Capital transfers received Capital Account

Change in liabilities Financial Account Uses Side

KTA entries SNA Account Monetary transactions: Products bought

Intermediate consumption Production Account Final consumption Use of Income Capital formation Capital Account

Paid Income Compensation of employees

Production (t-s) & import duties Generation of Income account

Property income Allocation of Primary income Transfers

Current transfers received Secondary distribution of Income Capital transfers received Capital Account

Change in liabilities Financial Account


The re-grouping of non-financial entries illustrates one of the important implications of the

double-entry accounting system. Note that the regrouping in Table 3.4 does not affect the sub-total

row in any way; it remains the same as that in Table 3.2. In other words, regrouping of the entries of

non-financial transactions within the resources- and uses-sides does not bring about any change in

balance of non-financial transactions (defined as sub-total: non-financial, resources-side minus sub-

total: non-financial, uses-side). Thus, even after regrouping, we see that the fourth transaction

identity:

Change in financial liabilities + sub-total: non-financial, resources-side

≡ Change in financial assets + sub-total: non-financial, uses-side

still holds good.

Table 4.6: SNA Sequence of Transaction Accounts in net terms Uses / changes in assets Resources/changes in liability & net worth

Production Account 870 Intermediate consumption GVObp 1199

Products sold (at basic price) 1133

For own use 23 10 CFC Non-market 43

(t-s) on products & import duties 126 445 B.1 NDP

Generation of Income Account 153 Compensation of employees B.1 NDP 445 130 Production (t-s) & import duties 162 B.2 OS + B.3 MI (net)

Allocation of Primary Income B.2 OS + B.3 MI (net) 162 Compensation of employees 152

121 Property income Property income 118 Production (t-s) & import duties 130

441 B.5 NNI Secondary Distribution of Income Account

B.5 NNI 441 3 Current transfers paid Current transfers received 3

441 B.6 NNDI Use of Disposable Income Account

B.6 NNDI 441 408 Final consumption 33 B.8 Gross savings

Capital Account B.8 Net savings 33

2 Capital transfers paid Capital transfers received 1 23 Gross Capital formation

- 10 CFC 19 B.9 Net lending / borrowing

Financial Account 203 Net acquisition of financial assets Net incurrence of liabilities 184

B.9 Net lending / borrowing 19



CFC in Transaction Accounts

What is missing from the SNA accounts in Table 4.5 is the CFC. Recall from Lesson I that

the entire sequence of accounts can be produced in gross or net terms. In Table 4.5, the SNA accounts

are shown in gross terms, i.e. without entering CFC in any of the transaction accounts.

For SNA sequence of accounts in net terms, one has to take CFC into consideration in the

sequence of accounts. In the sequence of accounts (in net terms), the CFC is entered in the ‘change in

assets’ side of the capital accounts, with a negative sign. To illustrate, let us assume that the estimate

of CFC is 10. The resulting sequence of accounts is shown in Table 4.6.

Note that CFC appears just twice in Table 4.6 – once in the uses-side of the production

account (10) and next in the ‘changes in assets’ of the capital account (-10). All the balancing items

get changed to corresponding aggregates in net terms2.

Balancing items

In this context, it is necessary to review the implications of including balancing items in the

structure of the SNA accounts. One of the most important implications of the double accounting

principle of accounting is that the difference or balance of non-financial transactions of the economy

(as well as each institutional unit and institutional sectors) is counter balanced by the difference

between the uses- and resources-side of financial transactions.

Recall that each of the transaction accounts have a balancing item, which is derived as the

difference between the sums of resources- and uses-sides of the accounts. The balancing item, thus

obtained is shown on the uses-side (or ‘changes in assets’ side) of each account and is repeated in the

resources-side of the next account in the sequence. This is followed in all the non-financial transaction

accounts – from the production account to the capital account. As a result, the sum of entries on the

two sides of the non-financial accounts after introducing the balancing items remains the same as

before. Thus, the difference between the sums of two sides will still be the balance of non-financial

transactions, which is shown as Net lending / borrowing in the capital accounts – the last in the

sequence of non-financial accounts.

The balancing item Net lending / borrowing appears again in the financial – shown on the

right-hand side of the accounts, i.e. under ‘changes in liabilities & net worth’. The financial

transactions are also presented in a disaggregated form in the financial account - the last in the

sequence of current accounts. This, however, is not attempted in this lesson; it will be taken up in

Lesson VII.

2 In fact, the balancing items in both ‘gross’ and ‘net’ terms along with the CFC are shown in all the transaction accounts.



Rules of Accounting

The KTAs, as we have seen, are based on the principle of quadruple-entry accounting. The

full sequence of accounts of the SNA, as we see, can be viewed as an extension of the KTAs. Thus, the

SNA sequence of accounts is also based on the principle of quadruple-entry accounting, because most

of the transactions carried out in economy involve two units. There are, however, transactions within

Box 4.4: Balancing Items in Full Sequence of Accounts

Account Balancing item

Current accounts

Goods and services account

Production and Generation of Income accounts

Production account Value added

Generation of income account Operating surplus/mixed income

Distribution and use of income accounts

Allocation of primary income account Balance of primary income

Secondary distribution of income account Disposable income

Redistribution of income in kind account Adjusted disposable income

Use of income accounts

Use of disposable income account Saving

Use of adjusted disposable income account Saving

Accumulation accounts

Capital account Net borrowing(+)/Net lending (-)

Financial account Net borrowing(+)/Net lending (-)

Other changes in assets account

Other changes in volume of assets account

Revaluation account

Balance Sheets

Opening balance sheet Net worth

Closing balance sheets Net worth

The Redistribution of income in kind account records social transfers in kind as resources for households and uses of government and NPISHs. The Use of adjusted disposable income account is a variant of the Use of disposable income account which takes the balancing item from Redistribution of income in kind account.



a single unit (such as CFC or production of goods & services for own consumption) which are not

covered in the KTAs as they do not involve any monetary flow. The SNA, on the other hand, cover all

economic flows. In the SNA sequence of accounts, within-unit (and not four) require only two entries.

The quadruple-entry accounting, in principle, ensures matched reporting by the two involved

parties. Thus, one should expect complete consistency between entries across sectors and transaction

categories. This can, however, be attained only if entries are made into the accounts following a

uniform set of rules. Two important rules necessary for consistency of accounts are:

• Flows and stocks must be recorded consistently with respect to their valuation. Entries are at

current value on the market or at its closest equivalent.

• Flows and stocks must be recorded consistently with respect to timing. [2008 SNA, 3.14]

Valuation of transactions

In the KTA consistency of the entries is ensured by the money-flow identity, which implies

that all transactions are recorded in the actual value of transactions in the market. Applying the same

principle of market valuation for non-monetary transactions, all the entries in the SNA accounts are, in

principle, recorded at the current exchange value of goods and services transacted in money terms.

The market values of the transactions are the values at which goods, services, labour or assets

are in fact exchanged or else could be exchanged for cash (currency or transferable deposits). In

determining the market value, often the value on the market has to be adjusted with respect to taxes

and subsidies on products, transport costs and trade margins. For example, households may report

they have purchased products for a certain value, which includes the value added tax (VAT). Retail

traders, however, will often state that they have sold those products for a value excluding VAT. This

invariably lead to an inconsistency in the accounts.

Following are the rules of valuation followed in the SNA:

• All monetary exchange transactions, including transactions in financial assets and

liabilities, are recorded at the prices actually paid by the buyer. Only in exceptional

cases, like transactions between affiliates, the observed value is adjusted before

recording in the SNA accounts.

• In non-monetary transactions, market prices are not observable. In such cases, valuation

according to market-price-equivalents is taken as an approximation to market prices. In

such cases, market prices of the same or similar items when such prices exist is

recommended for valuation.

• If there is no appropriate market for the non-monetary exchange transactions of good or

service, the valuation is at cost.

• Exports and imports are valued free on board (fob), i.e. the value at the exporters’

custom frontier, which do not include the insurance and freight costs.



In the SNA, output of products is recorded at basic prices, which excludes product taxes (less

subsidies). Similarly, imports are recorded without the import duties. Both are resources-side entries.

But on the uses-side of the accounts these are valued at purchasers’ prices. Thus, as we will later see,

that it is essential to include product taxes and import duties in the resources-side of the production

account.

Time of recording

In quadruple-entry accounting, it is necessary to record transactions at the same point of time

for both the units involved. Thus, we need a set of rules to determine the accounting period to which a

particular transaction should belong. In addition, exact timing is necessary for making adjustments for

price changes, particularly in situations of high inflation.

The KTA is based on money flows or cash accounting. This accounting system is not

appropriate for the SNA, since the time of payment is often very different from the time of an actual

transaction. Moreover, cash recording cannot be applied to the many non-monetary flows included in

the SNA.

The SNA therefore recommends adoption of accrual accounting. In this system, flows are

recorded at the moment of accrual within the accounting period (that is, the moment economic value

is created, transformed, exchanged, transferred or extinguished). Stocks are recorded at the moment to

which the account relates, typically the beginning or end of the accounting period.

Following are the rules for time of recording followed in the SNA:

• The time of recording acquisition of goods is the moment of change in economic

ownership.

• Similarly, time of recording acquisition and disposal of financial assets and liabilities is

the moment of change in economic ownership.

• Distributive transactions (like compensation of employees, interest, and rent) are

recorded in the period they become due.

• Similarly, redistributive transactions (like payment of taxes and transfers) are recorded

in the period when they become due.

• Output and intermediate consumption are recorded when the production takes place.



Box 4.5: Principle of Economic Ownership

The 2008 SNA gives clear guidance to distinguish between legal ownership and economic

ownership as follows:

- The legal owner of economic assets is the institutional unit entitled in law and

sustainable under the law to claim the benefits associated with the entities.

- The economic owner of economic assets is the institutional unit entitled to claim the

benefits associated with the use of the asset in question in the course of an economic

activity by virtue of accepting the associated risks.

Thus, the unit assuming the risk of the asset in case of damage, destruction and theft etc. is

the economic owner. The 2008 SNA clarifies that

– assets be recorded on the balance sheets of the economic rather than the legal owner;

– transactions involving change in ownership be recorded only when there is a change

in economic ownership.

Adoption of the principle of economic ownership has led to a number of other changes and

clarifications made in the 2008 SNA. They relate to:

Definition of output, particularly in treatment of between-establishment deliveries

within a multi-establishment enterprise. [discussed in some more detail in Lesson V]

Distinction between financial and operating leases [discussed in Lesson VI]

Treatment of (Natural) Resource leases as asset [discussed in Lesson VII];

Treatment of government issued permits [discussed in Lesson VII];

Treatment of public-private partnership (PPP) [discussed in Lesson VII];

Goods for processing [discussed in Lesson V];

Treatment of cost of ownership transfer [discussed in Lesson VII].



Points to note: • KTA covers only monetary transactions.

• The entries in the KTA of total economy and RoW are in accordance with the transaction

identity relating to flow of products.

• For an economy, external trade balance or external balance of goods and services

= value of products sold minus value of products purchased.

• In the SNA, the uses-side of the transaction identity is distributed over different

transaction accounts.

• Goods and services produced in an economy must be (finally) consumed, used for capital

formation or exported.

• All goods and services used within the economy must be produced in the economy or

imported.

• Thus, the goods and services account is usually compiled for the total economy and for

individual institutional sectors.

• Regrouping of non-financial transactions within the resources- and uses-sides does not

bring about any change in the balance of non-financial transactions.

• For an institutional unit / institutional sector / the total economy, the difference between

sums of resources- and uses-side of non-financial transactions is always equal to net

borrowing / lending.

• For an institutional unit / institutional sector / the total economy, net borrowing / lending

is always equal to change in financial assets minus change in financial liabilities.

• Since, all financial transactions are also monetary transactions, net borrowing / lending of

an economy is determined only by monetary transactions. The estimate of net borrowing /

lending is not affected by estimates of non-monetary transactions.

• In national accounts, the estimates of non-monetary transactions are often called

‘notional’ or ‘imputed’ values, since, being non-observable, they can not be obtained

directly from any statistical survey or administrative sources. These do not affect the

balancing item net borrowing / lending of the economy.

• The SNA recommends alternative methods of working out estimates of ‘notional’ or

‘imputed’ aggregates.

• The CFC, for instance, is recommended to be estimated by perpetual inventory method

[discussed later], though values of depreciation are usually presented in the annual



accounts of the companies. The figures for depreciation quoted in the company accounts,

being based on book value and not the current market value, do not represent the CFC.

• In general, every intra-unit transaction, except the CFC, affects two entries of the

transaction accounts – one in the resources-side and other on the uses-side or on the same

side with different signs. For example,

- output of ‘for own use’ production is recorded once on the resources-side (of the

production account) and next in the uses-side of either the use of income account

or under changes in assets in the capital account.

- use of raw materials drawn from an unit’s own inventory, is recorded once in the

uses-side as intermediate consumption and next under changes in assets in the

capital account.

• Like the product taxes, import duties are included in the resources-side of the production

account, since it is not included in the value of imports, valued at fob, but forms part of

use, valued at purchasers’ prices.

________________________________________



Lesson IV : Integrated Transaction Accounts

Lesson Completion Test

[Please note that this a fixed set of questions. You have to take the test on-line and may attempt as many times as you like. You will get access to the presentations of the next lesson, only after you secure 80% score in this test.

All the questions carry equal marks.]


1. For each institutional sector, change in assets minus change in liability equals sub-total of

resources-side minus sub-total of uses-side of the non-financial transactions.

True False

2. If in an economy GVO is 1200, use of products is 1100 and exports is 150, then imports

should always be 150.

True False

3. If for an economy, products sold is 500 and products purchased is 350, then the external

transaction balance of the economy should be 150.

True False

4. Uses-side of product flow is distributed over different accounts of the SNA.

True False

5. External transactions of primary income are reflected in generation of income account of the

economy.

True False


6. Goods and services account is drawn separately for each institutional sector.

True False

7. Non- monetary transactions always involve two parties.

True False

8. Both CII of finished products and CFC are non- monetary transactions.

True False

9. Transaction accounts of the SNA cover only monetary transactions.

True False



10. A change in the estimate of subsistence fishing (for own final consumption) does NOT affect

the balancing item ‘savings’ in the use of income account.

True False

11. Net lending / borrowing of an economy is affected by revision of the estimate of CFC.

True False

Rules of Accounting

12. Non-monetary transactions are always valued at cost.

True False

13. All monetary exchange transactions are valued at the prices actually paid by the buyer.

True False

14. In accrual accounting, a monetary transaction is recorded at the time when payment is made.

True False

15. Use of raw materials from one’s own inventory is recorded as intermediate consumption as

well as a negative CII when the production takes place.

True False

___________________________________________


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