X. THE CAPITAL ACCOUNT
General introduction to the accumulation accounts and balance sheets
1. Introduction
| 10.1. | The balance sheets and accumulation accounts form a group of accounts that are concerned with the values of the assets owned by institutional units or sectors, and their liabilities, at particular points in time and with the evolution of those values over time. Balance sheets measure the values of stocks of assets or liabilities and are typically compiled at the beginning and end of the accounting period. The total value of the assets owned by an institutional unit or sector minus the total value of its liabilities is described as its net worth. It is a measure of the wealth of a unit or sector at a point in time. The accumulation accounts record the changes in the values of the assets, liabilities and net worth that take place during the accounting period. They are flow accounts, whose entries depend on the amounts of economic or other activities that take place within a given period of time and on transactions and other flows associated with them. |
2. Assets
| 10.2. | The assets recorded in the balance sheets of the System are economic assets. These are defined as entities:
(a) Over which ownership rights are enforced by institutional units, individually or collectively; and
(b) From which economic benefits may be derived by their owners by holding them, or using them, over a period of time. | | | | |  Update available. Click here |
| 10.3. | Every economic asset must function as a store of value that depends upon the amounts of the economic benefits that its owner can derive by holding it or using it. However, this value does not usually remain constant as the benefits remaining often diminish with the passage of time. Different kinds of benefits may be derived from different kinds of assets, as follows:
(a) Some benefits are derived by using assets such as buildings or machinery in production;
(b) Some benefits consist of property incomes: for example, interest, dividends, rents, etc., received by the owners of financial assets and land;
(c) Finally, assets act as stores of value that may be realized by disposing of them or terminating them. While some assets may be held until the benefits derivable from them are exhausted, others may be disposed of before that point in order to realize the capitalized values of the benefits still remaining. Some assets may be held purely as stores of values (precious metals or stones, etc.) without any other benefits being derived from them. |
Financial assets
| 10.4. | Most financial assets are financial claims. Financial claims and obligations arise out of contractual relationships between institutional units. A financial claim may be defined as:
An asset that entitles its owner, the creditor, to receive a payment, or series of payments, from the other unit, the debtor, in certain circumstances specified in the contract between them.
The claim is extinguished when the liability is discharged by the debtor paying a sum agreed in the contract. Most financial claims arise when one institutional unit provides funds to another unit. Such claims include not only claims on financial intermediaries in the form of cash and deposits but also loans, advances and other credits and securities such as bills and bonds. For these claims the creditor may be entitled to a series of interest payments: i.e., property income. Financial derivatives, which are another form of financial claim, do not involve the provision of funds but derive their value from changes in the prices of underlying assets or indexes. Therefore, no property income is earned on financial derivatives. | | | | |  This paragraph has been revised. Click here to see the original version |
| 10.5. | Financial assets may now be defined as assets in the form of financial claims, monetary gold, Special Drawing Rights (SDRs) allocated by the International Monetary Fund (IMF), and shares in corporations. Monetary gold and SDRs are treated as financial assets even though their holders do not have claims over other designated units. Shares, even though their holders do not have a fixed or predetermined monetary claim on the corporation, are treated as financial assets by convention. For convenience, the term "financial asset" may be used to cover both financial assets and liabilities, except when the context requires liabilities to be referred to explicitly. | | | | | This paragraph has been revised. Click here to see the original version |
Non-financial assets
| 10.6. | Two different categories of non-financial assets need to be distinguished from each other: produced and non-produced assets.
Produced assets are defined as non-financial assets that have come into existence as outputs from processes that fall within the production boundary of the System as defined in chapter VI.
Non-produced assets are defined as non-financial assets that have come into existence in ways other than through processes of production. |
Produced assets
| 10.7. | There are three main types of produced assets: fixed assets, inventories and valuables. Both fixed assets and inventories are assets that are held only by producers for purposes of production.
Fixed assets are defined as produced assets that are themselves used repeatedly, or continuously, in processes of production for more than one year.
The distinguishing feature of a fixed asset is not that it is durable in some physical sense, but that it may be used repeatedly or continuously in production over a long period of time that is taken to be more than one year. Some goods, such as coal, may be highly durable physically but cannot be fixed assets because they can be used once only. Fixed assets include not only structures, machinery and equipment but also cultivated assets such as trees or animals that are used repeatedly or continuously to produce other products such as fruit or dairy products. They also include intangible assets such as software or artistic originals used in production.
Inventories consist of:
(a) Stocks of outputs that are still held by the units that produced them prior to their being further processed, sold, delivered to other units or used in other ways; and
(b) Stocks of products acquired from other units that are intended to be used for intermediate consumption or for resale without further processing.
Valuables are defined as goods of considerable value that are not used primarily for purposes of production or consumption but are held as stores of value over time.
The economic benefits that valuables bring are that their values are not expected to decline relatively to the general price level. They consist of precious metals and stones, jewellery, works of art, etc. | | | | | Update available. Click here |
Non-produced assets
| 10.8. | Non-produced assets consist of assets that are needed for production but have not themselves been produced. They include naturally occurring assets such as land and certain uncultivated forests and deposits of minerals. They also include certain intangible assets such as patented entities. |
| 10.9. | Not all environmental assets qualify as economic assets. It is useful, therefore, to delineate those naturally occurring assets that fall within the asset boundary of the System from those that do not. |
The asset boundary
| 10.10. | First, it must be noted that the System's accounts and balance sheets are compiled for institutional units or groups of units and can only refer to the values of assets that belong to the units in question. Only those naturally occurring assets over which ownership rights have been established and are effectively enforced can therefore qualify as economic assets and be recorded in balance sheets. They do not necessarily have to be owned by individual units, and may be owned collectively by groups of units or by governments on behalf of entire communities. Certain naturally occurring assets, however, may be such that it is not feasible to establish ownership over them: for example, air, or the oceans. In addition, there may be others that cannot be treated as economic assets because they do not actually belong to any particular units. These include not only those whose existence is unknown but also those, including uncultivated forests, that may be known to exist but remain so remote or inaccessible that, in practice, they are not under the effective control of any units. |
| 10.11. | Secondly, in order to comply with the general definition of an economic asset, natural assets must not only be owned but capable of bringing economic benefits to their owners, given the technology, scientific knowledge, economic infrastructure, available resources and set of relative prices prevailing on the dates to which the balance sheet relates or expected in the near future. Thus, known deposits of minerals that are not commercially exploitable in the foreseeable future are not included in the balance sheets of the System, even though they may possibly become commercially exploitable at a later date as a result of major, unforeseen advances in technology or major changes in relative prices such as those resulting from the oil shocks of the 1970s and 1980s. |
| 10.12. | Naturally occurring assets in the form of biota - trees, vegetation, animals, birds, fish, etc. - are renewable. The growth of trees, crops or other vegetation or the rearing of animals, birds, fish, etc., may take place under the direct control, responsibility and management of institutional units. In this situation, the assets are cultivated, and the activity is treated as falling within the production boundary of the System. The resulting assets are obviously produced assets that fall within the asset boundary of the System. However, some renewable assets in the form of biota may also be classified under the heading of non-produced assets: namely, forests and the wildlife inhabiting them that are actually owned by institutional units but whose renewal is not under the direct control, responsibility and management of those units. The growth of animals, birds, fish, etc., living in the wild, or growth of uncultivated vegetation in forests, is not an economic process of production so that the resulting assets cannot be produced assets. Nevertheless, when the forests and/or the animals, birds, fish, etc. are actually owned by institutional units and are a source of benefit to their owners, they constitute economic assets. Finally, when wild animals, birds, fish, etc. live in locations such that no institutional units are able to exercise effective ownership rights over them - for example, in the oceans or quite inaccessible regions - they fall outside the asset boundary. Similarly, the forests or other vegetation growing in such regions are not counted as economic assets. |
Valuation
| 10.13. | To ensure consistency between the accumulation accounts and the balance sheets, assets recorded in balance sheets should be valued as if they were being acquired on the date to which the balance sheet relates. For example, if fixed assets were to be acquired on the balance sheet date they would be recorded at their current purchasers' prices, including any costs of ownership transfer, or at their current basic prices if produced on own account. The valuation of fixed assets that were acquired some time before the balance sheet date is more problematic. In general, they are valued by writing-down the current purchasers' or basic prices of new assets by the accumulated consumption of fixed capital on the assets. With good information and efficient markets, the written-down values of the assets should equal, or at least approximate, both the present, or discounted, values of the remaining future benefits to be derived from them and their market values when active secondhand markets exist. In practice, these values may differ from each other because of lack of information or other imperfections. As already stated, the written-down value of the asset is generally the most practical and also the preferred method of valuing an existing fixed asset, bearing in mind that the calculation of consumption of fixed capital should take into account the observed values of secondhand assets when they are actively traded. |
| 10.14. | Most financial assets consist of financial claims. A financial claim is usually valued by the amount of the principal outstanding: i.e., by the amount that a debtor must pay to the creditor to extinguish the claim. When financial assets are traded on markets, this value is equal to the market price of the security in question as the debtor, or issuer of the security, can extinguish the claim by buying back the security at the current market price. |
3. Balance sheets and the sequence of accumulation accounts
| 10.15. | The basic accounting identity linking the opening and the closing balance sheet values for a single type of asset can be summarized as follows:
(a) The value of the stock of a specific type of asset in the opening balance sheet;
plus
(b) The total value of the assets acquired, less the total value of those disposed of, in transactions that take place within the accounting period: transactions in non-financial assets are recorded in the capital account and transactions in financial assets in the financial account;
plus
(c) The value of other positive or negative changes in the volume of the assets held (for example, as a result of the discovery of a subsoil asset or the destruction of assets as a result of war or a natural disaster): these changes are recorded in the other changes in the volume of assets account;
plus
(d) The value of the positive or negative nominal holding gains accruing during the period resulting from a change in the price of the asset: these are recorded in the revaluation account where they may be further decomposed into neutral holding gains that reflect changes in the general price level and real holding gains that reflect a change in the relative price of the asset;
is identical with
(e) The value of the stock of the asset in the closing balance sheet. |
| 10.16. | This identity requires transactions or other changes in the amounts of the asset held to be valued at the prices prevailing at the times they occur and the stocks of the asset recorded in the opening and closing balance sheets to be valued at the prices prevailing on the dates to which the balance sheets relate. The identity is valid even in the case of assets that are held only temporarily within the accounting period and that do not appear in either the opening or the closing balance sheets. |
| 10.17. | Each of the five elements involved in the above identity can be measured directly without the others. However, it follows from the identity that if any four of the elements are known, the fifth can be determined residually. Nevertheless, none of the elements is defined residually. |
| 10.18. | As the above identity applies to each individual type of asset and liability recorded in the balance sheets, it must be possible to decompose the change in the net worth of an institutional unit or sector between the beginning and end of the accounting period into that part due to transactions, that part due to other changes in the volume of assets held and that part due to holding gains or losses. The accumulation accounts record these various components of changes in net worth. Moreover, as nominal holding gains are decomposed into neutral and real holding gains, it is also possible to measure not only the change in real net worth over the period but also to identify the components of that change. |
| 10.19. | The accounting links between balance sheets and the accumulation accounts are further described in chapter XIII. The remainder of this chapter is concerned with transactions in the capital account. |
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