SNA Components and Sequence of Accounts 2: Accumulation Accounts

The accumulation accounts record the changes in assets and liabilities during the accounting period. The changes are either due to transactions, revaluations or other volume-changes. The difference between assets and liabilities is net worth.

The accumulation accounts show changes in assets on the left hand side, and changes in liabilities and net worth on the right hand side.

The capital account records the use of saving for the purpose of acquisition and disposal of non-financial assets and capital transfers (like inheritance tax and capital grants). On the changes in liabilities and net worth side are saving and capital transfers (net) recorded - what is disposable for accumulation, while on the changes in assets side is the acquisition less disposals of non-financial assets -the various types of investments, including changes in stocks- recorded.

The balancing item is net lending if positive and net borrowing if negative. If fixed capital investments during the period are less than the funds available, the institutional sector will lend the difference to another institutional sector, hence the term net lending. And vice versa, if the balancing item is negative, the investments undertaken have been larger than the funds available - savings and capital transfers, net - and that the difference is borrowed from another institutional sector. Likewise, if the balancing item is positive for the total economy, the country has lent the difference to the rest of the world, and if it is negative for the total economy, the difference is borrowed from the rest of the world.

Capital transfers; Transfer of cash that the first party has raised by disposing of an asset, or that the second party is expected/required to use for the acquisition of an asset. A capital transfers could also be in kind, and would include the transfer of ownership of an asset, or the cancellation of a liability (cancellation of debt).
Examples on capital transfers are capital grants, investment subsidies, debt forgiveness, inheritance and inheritance taxes.

Gross fixed capital formation; the total value of a producer's acquisitions, less disposals, of fixed assets during the accounting period plus certain additions to the value of non-produced assets (land, sub-soil assets) realized by the productive activity of institutional units.

This is the account where all transactions in financial assets and liabilities - financial instruments - are recorded, i.e. all borrowing and lending. The account shows net acquisitions of financial assets on the left, and net incurrence of liabilities on the right hand side.

The balancing item of this account is net lending / net borrowing, the same balancing item as in the capital account. The balancing items derived in these two accounts should be identical. However, this is in practice unlikely to happen, and the accounts will be reconciled to achieve this identity.

Monetary gold and SDRs; Monetary gold is owned by the monetary authorities as a financial asset and is a component of foreign reserves. SDRs - Special Drawing Rights - are international reserve assets created by the IMF and allocated to its members to supplement existing reserves.

Currency and deposits; comprises 1) currency which are all coins and notes in circulation, 2) transferable deposits which are a) exchangeable on demand at par (no restrictions), b) freely transferable by check or giro, and c) otherwise commonly used to make payments, as well as 3) other deposits which include all claims (other than transferable deposits) on the central bank, other depository institutions, government units and other units that are represented by evidence of deposit. - Typical examples of 'other deposits' would be saving-, term- and non-transferable deposits denominated in foreign currency.

Securities other than shares; consists of bills, bonds, certificates of deposit, commercial paper, debentures, tradable financial derivatives, and similar instruments traded in the financial markets.

Loans; financial assets that are created when creditors lend funds directly to debitors, that are evidenced by nonnegotiable documents, or for which the lender receives no security evidencing the transaction.

Shares and other equity; financial assets that are instruments and records acknowledging, after claims of all creditors have been met, claims to the residual value of incorporated enterprises.

Insurance technical reserves; consists of prepayments of premiums, reserves against outstanding claims and the actuarial reserves against outstanding risks in respect of life insurance policies, including reserves for with-profit policies which add to the value on maturity of with-profit endowments or similar policies.

Other accounts receivable; consists of trade credits and advances, plus any other items due to be received/paid.

The Other changes in assets accounts consists of two accounts, the Other changes in volume of assets accounts and the Revaluation account, which together records all changes in assets, liabilities and net worth due to factors (flows) other than transactions.

The account records those exceptional events which cause not only the value but also the volume of assets and liabilities to change. Other changes in volume of assets include events like discovery of subsoil resources (e.g. oil), destruction of resources by natural catastrophes and war, cancellation of debt - when a creditor recognizes that a financial claim can no longer be collected (not debt forgiveness, that is treated as a capital transfer since it is built on a mutual agreement between creditor and debtor), and changes in classification or structure. The balancing item is changes in net worth due to other changes in volume of assets.

The Revaluation account records changes in assets and liabilities due to changes in the level and structure in prices, nominal holding gains / losses. This account can be separated into two accounts, one measuring neutral holding gains/losses and one measuring real holding gains/losses. A neutral holding gain is defined as the value of the holding gain that would accrue if the price of the asset changed in the same proportion as the general price level - the value of holding gain needed to preserve the real value of the asset intact over time. A real holding gain is defined as an additional holding gain - additional to the general level of price changes. The balancing items are changes in net worth due to neutral holding gains/losses and changes in net worth due to real holding gains/losses, or, if only one account, changes in net worth due to nominal holding gains/losses.