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A MAP OF ENTRIES FROM OPENING BALANCE SHEET TO CLOSING BALANCE SHEET Annex 7.2 presents a map from the opening balance sheet to the closing balance sheet, showing the detail for each asset category with regard to the different ways in which the balance sheet value changes: through transactions or other changes in the volume of assets and holding gains and losses. CHAPTER 8 THE SEQUENCE OF ACCOUNTS INTRODUCTION 8.01 This Chapter sets out the details of the accounts and balance sheets in the sequence of accounts of the national accounts. It also sets out the interactions of the domestic economy with the rest of the world in the same sequence. The goods and services account is also described, reflecting the accounting identity underlying the supply and use of goods and services. Finally it presents the integrated set of economic accounts where each sector is shown in the same account with an aggregated form of account entries. The sequence of accounts

8.02 The ESA records flows and stocks in an ordered set of accounts describing the economic cycle from production and the generation of income, through its distribution and redistribution, and its use for final consumption. Finally the ESA records the use of what is left in the form of saving to provide for the accumulation of assets, both non-financial and financial.

8.03 Each of the accounts shows resources and uses, which are brought to a balance by the introduction of a balancing item, usually on the uses' side of the account. The balancing item is taken forward to the next account as the first entry on the resources side. The structured recording of transactions according to a logical analysis of economic life provides the aggregates required for the study of an institutional sector or subsector, or the total economy. The breakdown of the accounts is designed to reveal the most significant economic information, and the balancing item of each account is a key element in the information revealed.

8.04 The accounts are grouped in three categories:

(a) current accounts cover production and the associated generation, distribution and redistribution of income and its use in the form of final consumption. The income not directly used for final consumption is revealed in the balancing item saving, which is taken forward to the accumulation accounts as the first entry on the resources side of the capital account;

(b) accumulation accounts analyse changes in the assets and liabilities of the units and enable changes in net worth (the difference between assets and liabilities) to be recorded;

(c) balance sheets show the total assets and liabilities at the beginning and the end of the accounting period, together with the 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 to institutional units, institutional sectors and subsectors, 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, as consumption of capital is a call on disposable income which must be met if the capital stock of the economy is to be maintained.

8.07 The accounts are presented in two 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'.

8.08 Table 8.1 shows a synoptic presentation of the accounts, balancing items and main aggregates: The code for the main aggregates is not shown in the table, but is the same as the code for the balancing items, but with the addition of an asterisk after the number. For example for the Balance of primary incomes, the code is B.5g and the equivalent code of the main aggregate gross national income is B.5*g.

8.09 The balancing items are shown in the table in their gross form, and indicated as such by the use of 'g' in the code. For each such code there is a net form, where the estimate for capital consumption has been deducted. For example, value added, gross has a code of B.1g, and the net equivalent (value added, net) where capital consumption has been deducted, is B.1n. SEQUENCE OF ACCOUNTS Current accounts Production account (I) 8.10 The production account (I) shows the transactions relating to the production process. 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 reveals 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 institutional sectors and industries.

8.12 Value added (the balancing item of the account) may be calculated before or after allowing for the consumption of fixed capital, i.e. gross or net. Given that output is valued at basic prices and intermediate consumption at purchasers' 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. The code for this key aggregate balancing item, value added at whole economy level adjusted to be at market prices, is B.1*g and this is GDP at market prices. Net domestic product (NDP) code is B.1*n.

8.14 Financial intermediation services indirectly measured (FISIM) are allocated to users as costs. This requires part of interest payments to financial intermediaries to be reclassified as payments for services, and allocated as output of the financial intermediation producers. An equivalent value is identified as consumption of users. The value of GDP is affected by the amount of FISIM allocated to final consumption, exports and imports. Account I: production account 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 and capital transfers. This yields the disposable income as the balancing item. For the third stage, individual services provided by government and NPISHs to society are treated as part of household final consumption, and a corresponding income imputed to households. This is achieved through two accounts with adjusted items. An account is introduced called the redistribution of income in kind account, which shows in the resources the imputed extra income for households, and a corresponding use for government and NPISHs as the imputed transfer from these sectors. This gives a balancing item called the adjusted disposable income, which is identical to disposal income at the whole economy level, but different for the sectors of households, government and NPISHs.

In the fourth stage, the disposable income is taken forward to the next account, the use of disposable income account and this shows how the income is consumed, leaving saving as the balancing item. When individual services are recognised as consumption by households through the redistribution of income in kind account, the use of adjusted disposable income account shows how this measure of adjusted disposable income is spent by households on the social transfers in kind received from government and NPISHs, by adding the value of the social transfers in kind to household final consumption to give a measure called actual final consumption. The consumption for government and NPISHs is reduced by an equal and opposite amount, so that when saving is calculated for the government, NPISHs and households sectors, the adjusted treatment gives the same balancing item of saving for each sector as the standard treatment. 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 shown in Table 8.3.

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

8.17 The generation of income account presents the transactions of primary income from the point of view of the source sectors, rather than the destination sectors.

8.18 It shows how value added covers compensation of employees and other taxes (less subsidies) on production. The balancing item is 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 natural resources — which it has borrowed or rented;

(b) must receive on financial assets or on natural resources of which it is the owner.