Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community

The amounts of taxes and social contributions payable to the general government to be included under AF.79 should not include the part of these taxes and social contributions which is unlikely to be collected, and which therefore represents a general government claim that has no real value.

MEMORANDUM ITEMS

• 7.62. In order to show items of more specialized analytic interest for particular sectors, two memorandum items are to be included in the balance sheets:

• (a) consumer durables (AN.m);

• (b) direct foreign investment (AF.m).

Consumer durables (AN.m)

• 7.63. Consumer durables are durable goods used by households repeatedly over periods of time of more than one year for final consumption. They are included in the balance sheets only as memorandum items. Their inclusion as a component of the balance sheet would be appropriate if the system postulated that the durables were gradually used up in production processes whose outputs consist of services. But consumer durables are not treated in this way.

• 7.64. The stocks of consumer durables held by households — transport equipment and other machinery and equipment — are to be valued at current prices, both gross and net of accumulated charges equivalent to consumption of fixed capital. The figures shown as memorandum items in the balance sheet should be net of these accumulated charges.

• 7.65. Durable goods owned by owners of unincorporated enterprises may be used partly by the enterprise for production and partly by members of the household for final consumption. The values shown in the balance sheet for the enterprise should reflect the proportion of the use that is attributable to the enterprise.

Direct foreign investment (AF.m).

• 7.66. Direct investment consists of financial assets, not physical capital, because the direct investment enterprise is a corporation or quasi-corporation resident in another country. Financial assets and liabilities that constitute direct investment are to be recorded according to the nature of the financial assets in the categories shares and other equity, loans, and other accounts receivable/payable. The amounts of direct investment included within each of those categories should be recorded separately as a memorandum item.

FINANCIAL BALANCE SHEETS

• 7.67. The financial balance sheet (of a sector or the rest of the world) shows on its left side financial assets and on its right side liabilities. The balancing item of the financial balance sheet is net financial assets (BF.90).

• 7.68. The financial balance sheet of a sector may be consolidated or non-consolidated. The non-consolidated financial balance sheet shows the financial assets and liabilities of the institutional units classified in the sector. Compared to the non-consolidated financial balance sheet, those financial assets and liabilities are eliminated from the consolidated financial balance sheet, the counterparts of which are respectively liabilities or financial assets of institutional units classified in the same sector. The external assets and liabilities account, that is the financial balance sheet of the rest of the world (see paragraph 8.77), is consolidated by definition.

• 7.69. The financial balance sheet by debtor/creditor (of a sector or the rest of the world) is an extension of the financial balance sheet, showing in addition a breakdown of financial assets by debtor sector and a breakdown of liabilities by creditor sector. Therefore, it provides information on debtor/creditor relationships and it is consistent with the financial account by debtor/creditor (see paragraph 5.13).

Annex 7.1

Definition of each asset category

Statistical Classification of Products by Activity (CPA)

Annex 7.2

A map of entries from opening balance sheet to closing balance sheet

Memorandum item: AN.m: Consumer durables.

Memorandum item: AF.m: Direct foreign investment.

CHAPTER 8

SEQUENCE OF ACCOUNTS AND BALANCING ITEMS

• 8.01. The ESA records flows and stocks in an ordered set of accounts describing the economic cycle from the generation of income, through its distribution and redistribution and finally to its accumulation in the form of assets.

• 8.02. Each of the accounts shows transactions which balance out, either because of the definitions used or because a significant balance is carried forward to the next account.

• 8.03. The structured recording of transactions according to a logical analysis of economic life provides the aggregates required for the study of an industry, an institutional sector or subsector, or the total economy. The breakdown of the accounts was designed to reveal the most significant economic information.

• 8.04. The accounts are grouped in three categories:

• (a) current accounts;

• (b) accumulation accounts;

• (c) balance sheets.

Current accounts concern the generation, distribution and redistribution of income and its use in the form of final consumption. Finally, they permit the calculation of saving, which is an essential factor in accumulation.

Accumulation accounts analyse the various components of changes in the assets and liabilities of the various units and enable changes in net worth (the difference between assets and liabilities) to be recorded.

Balance sheets show the total assets and liabilities of the various units at the beginning and the end of the accounting period, together with their net worth. The flows for each asset and liability item recorded in the accumulation accounts are seen again in the changes in balance sheets account.

• 8.05. The sequence of accounts applies, wholly or partly, to institutional units, institutional sectors and subsectors, industries and the total economy.

• 8.06. The balancing items are established both gross and net. They are gross if calculated before deduction of consumption of fixed capital and net if calculated after this deduction. It is more significant to express income balancing items in net terms.

• 8.07. The accounts are presented in various ways:

• (a) in the form of integrated economic accounts, showing the accounts for all the institutional sectors, the total economy and the rest of the world in a single table;

• (b) in the form of a sequence of accounts, giving more detailed information. The tables showing the presentation of each account are given in the section of this chapter entitled ‘Sequence of accounts’;

• (c) in the form of matrices, in which each account is represented by a row/column pair.

• 8.08. Synoptic presentation of the accounts, balancing items and main aggregates:

Table 8.1 — Synoptic presentation of the accounts, balancing items and main aggregates

SEQUENCE OF ACCOUNTS

• 8.09. The sequence of accounts is composed of three main categories of accounts:

• (a) Current accounts:
• 1. production account (I);
• 1. distribution and use of income accounts (II);

• (b) accumulation accounts (III);

• (c) balance sheets (IV).

CURRENT ACCOUNTS

Production account (I) ([^E0099])

• 8.10. The production account (I) shows the transactions relating to the production process proper. It is drawn up for institutional sectors and for industries. Its resources include output and its uses include intermediate consumption.

• 8.11. The production account can be used to obtain one of the most important balancing items in the system — value added, or the value generated by any unit engaged in a production activity — and a vital aggregate: gross domestic product. Value added is economically significant for both the institutional sectors and the industries.

• 8.12. As with the balancing items of the following accounts, value added (the balancing item of the account) may be calculated before or after consumption of fixed capital, i. e. gross or net. Given that output is valued at basic prices and intermediate consumption at purchaser's prices, value added does not include taxes less subsidies on products.

• 8.13. The production account at the level of the total economy includes in resources, in addition to the output of goods and services, taxes less subsidies on products. It thus enables gross domestic product (at market prices) to be obtained as a balancing item.

• 8.14. As financial intermediation services indirectly measured (Fisim) are not allocated to user sectors, the whole of the value of the output of Fisim is treated as the intermediate consumption of a nominal sector with zero output and negative value added equal in size but opposite in sign to intermediate consumption. In this way, the value added of all sectors and industries together is reduced in total by this amount. To lighten the presentation of accounts, it is possible not to insert a supplementary column for the nominal sector, but instead to take into account the corresponding figure in the column total economy.

Distribution and use of income accounts (II)

• 8.15. Distribution and use of income are analysed in four stages: primary distribution, secondary distribution, redistribution in kind and use of income.

The first stage concerns the generation of income resulting directly from the production process and its distribution between the production factors (labour, capital) and general government (via taxes on production and imports, and subsidies). It enables the operating surplus (or mixed income in the case of households) and primary income to be determined.

The second stage traces redistribution of income via transfers other than social transfers in kind. This yields the disposable income.

The third stage describes redistribution via social transfers in kind, yielding the adjusted disposable income.

The fouth stage describes how the income is consumed and saved, yielding the saving.

Table 8.2. — Account I: Production account

Primary distribution of income accounts (II.1)

Generation of income account (II.1.1)

The layout of the generation of income account by institutional sector is as shown in the table 8.3.

• 8.16. The generation of income account is also presented by industries, in the columns of the supply and uses tables.

• 8.17. The generation of income account presents the sectors, subsectors and industries which are the source, rather than the destination, of primary income.

• 8.18. It analyses the extent to which value added can cover compensation of employees and other taxes less subsidies on production. It measures the operating surplus, which is the surplus (or deficit) on production activities before account has been taken of the interest, rents or charges which the production unit:

• (a) must pay on financial assets or on tangible non-produced assets which it has borrowed or rented;

• (b) must receive on financial assets or on tangible non-produced assets of which it is the owner.

The operating surplus corresponds to the income which the units obtain from their own use of their production facilities. It is the last balancing item which can be calculated for both the industries and the institutional sectors and subsectors.

• 8.19. In the case of unincorporated enterprises in the households sector, the balancing item of the generation of income account implicitly contains an element corresponding to remuneration for work carried out by the owner or members of his family which cannot be distinguished from his profits as entrepreneur. This is referred to as ‘mixed income’.

• 8.20. In the case of own account production of accommodation services by owner-occupier households, the balancing item of the generation of income account is an operating surplus.

Allocation of primary income account (II.1.2)

• 8.21. Unlike the generation account, the allocation of primary income account concerns the resident units and institutional sectors as recipients rather than producers of primary income.

• 8.22. ‘Primary income’ is the income which resident units receive by virtue of their direct participation in the production process, and the income receivable by the owner of a financial asset or a tangible non-produced asset in return for providing funds to, or putting the tangible non-produced asset at the disposal of, another institutional unit.

• 8.23. The allocation of primary income account (II.1.2) can be calculated only for the institutional sectors and subsectors because, in the case of industries, it is impossible to break down certain flows connected with financing (capital loans and borrowings) and assets.

• 8.24. As financial intermediation services indirectly measured (Fisim) are not allocated to user sectors, the entries shown for interest are those for actual interest payable and receivable. An adjustment is made to resources in the column financial corporations (with a negative sign) and in the column nominal sector (with a positive sign). To lighten the presentation of accounts, it is possible not to insert a supplementary column for the nominal sector, but instead to present the corresponding figure in the column total economy.

• 8.25. The allocation of primary income account is broken down into an entrepreneurial income account (II.1.2.1) and an allocation of other primary income account (II.1.2.2).

Entrepreneurial income account (II.1.2.1)

• 8.26. The purpose of the entrepreneurial income account is to determine a balancing item corresponding to the concept of current profit before distribution and income tax, as normally used in business accounting.

Table 8.3. — Account II.1.1: Generation of income account

Table 8.4 — Account II.1.2: Allocation of primary income account