National Income Accounting

Meaning

            National Income accounting is also known as social accounting. Cooper has defined as “Social Accounting is concerned with the statistical classification of the activities of human beings and human institutions in ways which help us to understand the operation of the economy as a whole. The field of study summed up by the words ‘social accounting’ embraces, however, not only the classification of economic activity, but also the application of the information thus assembled to the investigation of the operation of the economic system.”

Components of Social Accounting

The principal forms of economic activity are production, consumption, capital accumulation, government transactions and transactions from the other parts of the globe. These are the components of social accounting.

1. Production Account

The production account relates to the business sector of the economy. It includes all forms of productive activity, i.e. manufacturing, trading etc. it covers public and private companies. Let us see the structure of a Production account which is used for recording in accounting purposes.

Payments	Value in Million $	Receipts	Value in Million $
Payments to personal sector i.e. Wages etc.	xxx	Consumption Expenditures	xxx
Payments to Government	xx	Government Purchases	xx
Business Saving	x	Gross Private Domestic Investment	xx
Import of Goods and Services	x	Export of Goods and Services	xx
Gross National Income	xxx	Gross National Expenditure	xxx

Explanation of this tablet

1. Payments to Personal sector include rent, interest, dividend, wages, salaries, employee’s compensations and proprietor’s income.


2. The term payments to government include producers’ net payment to government in the form of taxes and social security payments.


3. Business saving refers to producers’ retained income or corporate saving.


4. The last item relates to payments made to foreign sector for imports of goods and services.

All these items comprise of gross national income.

1. The receipts side of the production account shows the incomings to the business sector from sales of goods and services to the household or personal sector.


2. Government purchases refer to sales of goods and services sold by the business sector to government.


3. Gross Private domestic investment comprises the gross flow of capital goods and the net change in inventories.


4. Net exports refer to the income earned by the business sector by selling goods and services to the other parts of the globe.

The sum of all these items comprises of GNP by expenditure.

2. Consumption Account

The consumption account refers to the income and expenditure account of the household or personal sector. The household sector includes all consumers and non-profit making institutions such as clubs and associations. Let us see the structure of consumption account.

Payments	Value in Million $	Receipts	Value in Million $
Consumption Expenditure	xxx	Receipts from business, wages and salaries etc.	xxx
Payments to Government	xx	Receipts from Government	x
Personal Savings	xx
Transfers to foreigners	x
Personal outlay and Savings	xxx	Personal Income

Explanation of this Tablet

1. The chief item in the left side of the consumption account is the expenditure of household consumers in buying goods and services from the business sector to satisfy their wants.


2. Payments to government include taxes and special insurance contributions.


3. The next item refers to personal saving used for investment by the household sector.


4. The item transfers to foreigners’ might be taken to relate to investment in foreign securities or expenses by the residents on education or travel abroad.


5. The right hand side of the account shows income of business and household consumers as the major item which comes in the form of wages, salaries etc.


6. Receipts from Government include transfer payments and net interest payments on public debt.


3. Government Account

The government account relates to the outflows and inflows of the government sector. In the government sector are included all public authorities centre, states and local authorities in a nation. The government account is structured as follows.

Payments	Value in Million $	Receipts	Value in Million $
Payments to Business	xx	Receipts from business	xx
Payments to Persons	x	Receipts from persons	xx
Government to Surplus	xx
Payments to Foreigners	x
Government outlay and surplus	xx	Government Receipts	xx

Explanation of this Tablet

1. Government surplus refers to investment made by the government out of its surplus or saving.


2. Nevertheless, the significant point to be noted is that state owned business enterprises are excluded from the government sector as they have been included in the business sector for the reason that like private enterprises public undertakings produce goods and services for sale.


4. Capital Account

The capital account shows that saving equals domestic and foreign investment. Savings is invested in fixed capital and inventories within the country and or in international assets. The structure of capital account is shown below.

Payments	Value in Million $	Receipts	Value in Million $
Gross Private domestic investment	xx	Business Savings	x
Net foreign investment	x	Personal Saving	xx
Gross Investment	xx	Government Surplus	xx
		Gross Saving	xx

Explanation of this tablet

1. The gross private investment includes the gross flow of capital goods and net change in inventories.

2. Net foreign investment is the foreign surplus on current account.

3. On the right side, gross saving includes business and personal savings and government surplus.

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Other topics under Introduction and National Income:

• Changes in the Distribution of National Income
• Circular Flow of Income
• Circular Flow of Income in a Four Sector Economy
• Economic Welfare and National Income
• Foreign Account
• Limitations of Macro Economics
• National Income: Meaning and Measurement
• Nature and Scope of Macro Economics