ST/ESA/STAT/SER.F/76 Department of Economic and Social Affairs Statistics Division Studies in Methods Series F, No.76 Handbook of National Accounting LINKS BETWEEN BUSINESS ACCOUNTING AND NATIONAL ACCOUNTING United Nations New York, 2000 2 NOTE Symbols of United Nations documents are composed of capital letters combined with figures. The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. Where the designation Acountry or area@ appears, it covers countries, territories or areas. ABBREVIATIONS BEA : Bureau of Economic Analysis (United States of America) GFCF : Gross fixed capital formation GCF : Gross capital formation GCS : Gross capital stock FC : Financial corporation FIFO : First in, first out FISIM : Financial intermediation services indirectly measured FRB : Federal Reserve Board (United States of America) INSEE : Institut national de la statistique et des études économiques (France) ISIC : International Standard Industrial Classification of All Economic Activities LIFO : Last in, first out NCS : Net capital stock NFC : Non-financial corporation NIPA : National income and product accounts (United States of America) PIM : Perpetual inventory method PV : Present value SNA : System of National Accounts SUT : Supply and use tables UNSD : United Nations Statistics Division ST/ESA/STAT/SER.F/76 United Nations publication Sales No. E.00.XVII.13 ISBN 92-1-161427-9 Copyright 8United Nations 2000 All rights reserved CONTENTS ACKNOWLEDGEMENTS............................................................................................................................................1 INTRODUCTION...........................................................................................................................................................3 CHAPTER I: COMPILATION OF NATIONAL ACCOUNTS FROM BUSINESS ACCOUNTS: NON-FINANCIAL CORPORATIONS Vu Quang Viet, United Nations Statistics Division A. Overview...........................................................................................................................................................13 B. Statement of incomes and expenditures...........................................................................................................15 1. Description of the income and expenditure statement......................................................................15 (a) Net sales...............................................................................................................................17 (b) Cost of goods sold...............................................................................................................18 Trading companies...........................................................................................................18 Manufacturing corporations............................................................................................19 (c) Gross profit..........................................................................................................................19 (d) Operating expenses..............................................................................................................19 (e) Operating income................................................................................................................20 (f) Other income.......................................................................................................................20 (g) Other expenses.....................................................................................................................20 (i) Income from continuing operations....................................................................................21 (k) Taxes on income..................................................................................................................21 (m) Discontinued operations of segment...................................................................................22 (n) Extraordinary gains and loss...............................................................................................22 (o) Cumulative effect of change in accounting principle.........................................................22 Note on accounting income and taxable income...............................................................................23 Notes on depreciation and depletion.................................................................................................24 Note on valuation of inventories in output calculation.....................................................................24 2. Relationship between the income statement and SNA accounts......................................................26 3. Intermediate production and income account...................................................................................29 4. Adjustment of intermediate accounts to obtain SNA production and income accounts..................30 (a) Inclusion of output for intermediate consumption and capitalized output for own final use..................................................................................................................30 (b) Adjustment of interest receivable and interest payable......................................................31 (c) Adjustment for insurance premiums...................................................................................32 (d) Adjustment for consumption of fixed capital.....................................................................32 (e) Adjustment for property income attributed to insurance holders......................................33 (f) Adjustment for taxes...........................................................................................................33 (g) Comments of final SNA accounts.......................................................................................33 5. OCAM: A case of income statement mandated to serve national account compilation..................34 6. Strategies for compilation of production and income accounts........................................................34 (a) Option 1...............................................................................................................................34 (b) Option 2...............................................................................................................................35 (c) Option 3...............................................................................................................................36 4 C. Changes in financial position and balance sheets.....................................................................................................46 1. Description of a business balance sheet............................................................................................46 (a). Current assets.......................................................................................................................49 (b). Property, plant and equipment............................................................................................50 (c) Land and natural resources..................................................................................................51 (d) Other long-term assets.........................................................................................................51 (e). Current liabilities.................................................................................................................53 (f) Long-term debt....................................................................................................................54 (h) Shareholders’ equity............................................................................................................54 2. Description of statement of changes in financial position................................................................55 (a) Recording of fixed assets and depreciation in business balance sheets.............................56 (b) Recording of bonds in business balance sheets..................................................................58 3. SNA capital and financial accounts...................................................................................................58 Adjustment of capital and financial accounts...................................................................................59 4. SNA balance sheets............................................................................................................................62 D. Revaluation in business and national accounts..........................................................................................................64 Appendix 1: Revaluation of bonds.........................................................................................................................68 Appendix 2: OCAM income statement and balance sheet.....................................................................................70 CHAPTER II USE OF BUSINESS COST ACCOUNTING TO DETERMINE THE COST OF A PARTICULAR PRODUCT IN A MULTI-PRODUCT ENTERPRISE Francis Rousse, Consultant, and Vu Quang Viet, United Nation Statistics Division A. General accounting and cost accounting..........................................................................................................73 B. Enterprise and establishment............................................................................................................................74 1. Cost accounting in the general framework of business accounts.....................................................75 2. Cost accounting in the SNA framework............................................................................................77 C. General methodology used in cost accounting................................................................................................77 1. Direct costing.....................................................................................................................................77 2. Full costing.........................................................................................................................................78 3. Allocation techniques........................................................................................................................79 D. Implication of cost accounting for SNA data collection.................................................................................80 Appendix 1: An example of micro costing decision..............................................................................................82 Appendix 2: Example of an allocation process to production departments..........................................................83 CHAPTER III RECORDING OF CHANGE IN INVENTORIES IN THE SNA AND IN THE BUSINESS ACCOUNTS - A CASE STUDY OF CANADIAN PRACTICES Kishori Lal, Statistics Canada A. Overview...........................................................................................................................................................85 B. Canadian practices............................................................................................................................................86 1. Farm inventories.................................................................................................................................87 2. X-11-ARIMA.....................................................................................................................................87 3. Inventories for manufacturing, wholesale and retail industries........................................................88 4. Prices..................................................................................................................................................89 5. The calculation at Statistics Canada..................................................................................................89 6. Deflators.............................................................................................................................................89 7. Revaluers............................................................................................................................................90 C. Statistics Canada calculation versus the 1993 SNA calculation.....................................................................90 1. Rebasing.............................................................................................................................................91 2. Annual input-output tables................................................................................................................91 3. Data detail..........................................................................................................................................91 4. Reliability...........................................................................................................................................94 D. Change in inventories under conditions of high inflation...............................................................................94 Comment on results...........................................................................................................................95 E. Concluding remarks..........................................................................................................................................96 CHAPTER IV USING BUSINESS ACCOUNTS TO COMPILE NATIONAL ACCOUNTS: THE FRENCH EXPERIENCE Patrick Augeraud, Institut national de la statistique et des études économiques, France, and Jean-Etienne Chapron, United Nations Statistics Division A. From standardized tax statistics to the intermediate system of enterprises: some remarks 1. Origins (1947-1967)...........................................................................................................................97 2. The intermediate system of enterprises.............................................................................................98 3. The intermediate system of enterprises in national accounts today..................................................99 (a) Production approach............................................................................................................99 (b) Expenditure approach..........................................................................................................99 (c) Income approach.................................................................................................................99 (d) Data production schedule..................................................................................................100 4. Purposes of the intermediate system of enterprises for national accounts.....................................100 (a) Ensuring an exhaustive coverage, by kind of economic activity, of non-financial enterprises...............................................................................................101 (b) Making individual data cohere, with a view to further aggregation................................101 (c) Building a preliminary framework for economic analysis...............................................101 B. Input to the intermediate system of enterprises: collection and processing of individual accounting data.......................................................................................................102 1. Main sources....................................................................................................................................102 (a) Data collected by the tax administration...........................................................................102 (b) Data from surveys of enterprises.......................................................................................103 (c) Comparison of sources for large enterprises....................................................................104 2. Individual data processing...............................................................................................................104 (a) In search of coherence.......................................................................................................104 (b) A selective processing of anomalies and discrepancies at the micro-level.....................105 (c) Control of data coverage...................................................................................................105 C. Building the intermediate system of enterprises............................................................................................105 1. Introduction......................................................................................................................................105 (a) Main features.....................................................................................................................105 (b) The conceptual framework of the intermediate system of enterprises.............................106 (c) The four intermediate systems..........................................................................................107 2. Intermediate system of enterprises - Industrial and commercial profits.........................................108 (a) Enterprises with 20 or more employees............................................................................108 (b) Enterprises with fewer than 20 employees ......................................................................110 3. Intermediate system of enterprises - Non-commercial profits 111 4. Intermediate system of enterprises - Agricultural profits...............................................................112 5. Intermediate system of enterprises - Other non-financial entities..................................................112 D. From intermediate system to national accounts' central framework.............................................................113 1. Basic principles................................................................................................................................113 2. 6 Concrete adjustments......................................................................................................................................114 (a) Adjustments estimated from enterprises' individual accounts.........................................114 (b) Adjustments estimated from detailed supply and use accounts.......................................114 (c) Adjustments estimated from distributive transactions accounts......................................115 (d) Adjustment for under-reporting: the underground economy...........................................116 3. Before the final synthesis.................................................................................................................117 E. Conclusion......................................................................................................................................................117 Bibliography..................................................................................................................................................................118 CHAPTER V USE OF BUSINESS ACCOUNTS IN THE COMPILATION OF UNITED STATES NATIONAL ECONOMIC ACCOUNTS Robert P. Parker, Bureau of Economic Analysis, United States Department of Commerce A. Business accounts in the United States..........................................................................................................121 1. Tax return information.....................................................................................................................121 2. Financial accounting information....................................................................................................122 B. Preparation of the national income and product accounts (NIPA)................................................................122 C. Use of business accounts................................................................................................................................123 1. NIPA.................................................................................................................................................123 2. Balance sheets..................................................................................................................................124 D. Issues in using business accounts...................................................................................................................124 E. Improving the use of business accounts.........................................................................................................126 Appendix 1: United States national income and product accounts (NIPA): Summary methodologies.............128 Appendix 2: Source data used in the flow of funds balance sheets....................................................................145 Appendix 3: Classifications of production in the national income and product accounts (NIPA).....................148 Appendix 4: Relation of corporate profits in the national income and product accounts (NIPA) to corresponding measure as published by the Internal Revenue Service (IRS)....................152 CHAPTER VI LINK BETWEEN BUSINESS ACCOUNTS AND NATIONAL ACCOUNTS FOR THE NON-FINANCIAL SECTOR Ching Hea Choo, Department of Statistics of Malaysia A. Introduction to the compilation of the SNA institutional sector accounts in Malaysia........................153 1. Overall framework of the Malaysian institutional sector accounts 154 2. Non-financial sector..........................................................................................154 3. Financial sector...............................................................................................155 4. General government sector..................................................................................155 5. Household sector .............................................................................................155 6. Rest of the world sector.....................................................................................156 B. Compilation of the accounts for the non-financial sector .........................................................156 1. Sources of data................................................................................................156 (a) Common Questionnaire (CQ) survey...........................................................156 (b) Financial survey (FS).............................................................................158 (c) Estate survey.......................................................................................158 (d) Business accounts..................................................................................158 2. Use of the Common Questionnaire survey and the estate survey data for the compilation of the institutional accounts.........................................................................................159 (a) Production account................................................................................159 (b) Generation of income account...................................................................160 (c) Primary income account..........................................................................161 (d) Secondary distribution of income account.....................................................161 (e) Capital account.....................................................................................161 3. Use of the business accounts data for the compilation of income-outlay accounts.................164 (a) Example of a business account..................................................................164 (b) Linking business accounts to SNA accounts...................................................164 4. Allocation of financial intermediation services indirectly measured (FISIM) for the non-financial sector..................................................................................165 (a) Finding the FISIM.................................................................................165 (b) Pure interest receivable/payable.................................................................166 5. Allocation of insurance service charges as intermediate consumption to the non-financial sector......................................................................................167 C. Conclusion................................................................................................................167 Appendix 1: Profit and loss account and balance sheet of a transport company over a calendar year..........168 Appendix 2: Linking profit and loss account to SNA accounts.......................................................173 Appendix 3: Reorganization of the business accounts into SNA accounts ..........................................173 CHAPTER VII COMPILATION OF SECTOR ACCOUNTS OF NON-FINANCIAL CORPORATIONS: LATIN AMERICAN PRACTICES Magda Ascues, Consultant and Jan W. van Tongeren, United Nations Statistics Division A. Business accounting and national accounts..........................................................................177 B. Data sources..............................................................................................................178 1. Financial statements of enterprises.........................................................................178 2. Enterprise - establishment surveys.........................................................................179 (a) The enterprise module............................................................................180 (b) The establishment module........................................................................180 C. Conversion of the financial statements to non-financial corporate sector accounts of the SNA ............181 1. General format of links between business and national accounts standards.........................181 2. Conversion to SNA format..................................................................................184 (a) Production, income and use of income accounts.............................................184 (b) Capital accounts....................................................................................188 (c) Financial accounts and balance sheet...........................................................189 (d) Final reconciliation of net lending between the capital and financial accounts ..........191 D. Integration of data between industries and non-financial corporations..........................................193 1. Integration of industry and sector accounts...............................................................194 (a) Changes in inventories............................................................................195 (b) Output...............................................................................................195 2. Integration with the accounts of other sectors............................................................196 E. Country practices........................................................................................................197 1. Dominican Republic..........................................................................................197 2. Peru.............................................................................................................197 3. Colombia.......................................................................................................198 Appendix 1: Non-financial corporations, profit and loss accounts and balance sheets, intermediate data: example........................................................................................................200 Appendix 2: Non-financial corporate sector accounts in the SNA format: example..............................204 Appendix 3: Compilation of non-financial corporate sector accounts: experiences in Peru.....................210 Appendix 4: Spanish equivalents of terms used.........................................................................211 8 CHAPTER VIII MEASUREMENT OF FIXED CAPITAL STOCK AND CONSUMPTION OF FIXED CAPITAL Vu Quang Viet, United Nations Statistics Division A. Theoretical foundation of valuing fixed assets......................................................................213 B. Perpetual inventory method as an approximation for the present value method of wealth capital stock...216 1. Tracing over time the value of one fixed asset put in place from a specific time period..........218 2. Tracing over time the value of a group of assets of the same kind put in place in a specific time period........................................................................................218 3. The perpetual inventory method (PIM)...................................................................221 4. Problems with PIM in measuring wealth capital stock and alternatives.............................223 C. Productive capital stock for productivity analysis..................................................................224 Appendix 1: Depreciation schedule........................................................................................227 Appendix 2: Retirement (or mortality) and survival functions........................................................228 Appendix 3: Review of country practices................................................................................231 Appendix 4: Average service life..........................................................................................232 CHAPTER IX BALANCE SHEET VALUATION: PRODUCED INTANGIBLE ASSETS AND NON-PRODUCED ASSETS Marcel Pomme and Willem Baris, Statistics Netherlands A. Introduction...............................................................................................................235 B. Balance sheets: conceptual issues.....................................................................................236 1. Asset boundary................................................................................................236 2. Institutional sectors...........................................................................................237 3. Flows and stocks..............................................................................................237 4. Categories of non-financial assets..........................................................................237 5. Principles of valuation.......................................................................................238 C. Produced assets: intangible fixed assets..............................................................................241 1. Mineral exploration..........................................................................................241 2. Computer software...........................................................................................244 3. Entertainment, literary or artistic originals...............................................................247 D. Produced assets: valuables.............................................................................................249 E. Non-produced assets: tangible assets.................................................................................249 1. Land............................................................................................................250 2. Subsoil assets..................................................................................................254 (a) Natural gas and oil reserves......................................................................254 (b) Non-metallic mineral reserves...................................................................258 3. Non-cultivated biological resources........................................................................259 4. Water resources...............................................................................................259 F. Non-produced assets: intangible assets...............................................................................260 1. Patented entities...............................................................................................260 2. Leases and other transferable contracts...................................................................263 3. Purchased goodwill...........................................................................................263 G. Summary and concluding remarks....................................................................................264 References...........................................................................................................................266 ACKNOWLEDGEMENTS This handbook is the result of the international cooperation between the United Nations Statistics Division (UNSD), national statistical agencies and individual experts who have contributed papers to it. Some countries and institutions also funded the participation of their experts in the Expert Group Meeting held in New York between 18 and 22 August 1997. The national statistical agencies of Canada, France, Malaysia, the Netherlands and the United States of America, volunteered their experts' time in preparing papers. The Organisation for Economic Co-operation and Development (OECD) and World Bank sent their experts to participate in the discussions on the papers presented at the meeting. In addition, comments on contributed papers were received from the International Monetary Fund (IMF). The handbook includes papers revised after the meeting. The experts who contributed papers to the meeting were Ms. Magda Ascues (Consultant to UNSD, Peru), Mr. Patrick Augeraud (INSEE, France), Mr. Willem Baris (Statistics Netherlands), Mr. Jean-Etienne Chapron (UNSD), Ms. Ching Hea Choo (Department of Statistics of Malaysia), Mr. Kishori Lal (Statistics Canada), Mr. Robert P. Parker (Bureau of Economic Analysis, United States), Mr. Marcel Pomme (Statistics Netherlands), Mr. Francis Rousse (Consultant to UNSD, France), Mr. Jan van Tongeren (UNSD) and Mr. Vu Quang Viet (UNSD). Experts participating and commenting on contributed papers included Mr. Wilhelm van den Andel (Consultant to UNSD, the Netherlands), Mr. A. C. Kulshreshtha (Central Statistical Organisation of India), Mr. Denis Ward (OECD) and Mr. Michael Ward (World Bank). The United Nations Statistics Division is grateful to national statistical agencies, international organizations and individual experts for their contributions to the successful completion of this handbook. Responsible for organizing the meeting and preparing the final draft was Mr. Vu Quang Viet. The conceptual outline of the handbook as well as of the agenda for the Expert Group Meeting was developed together with Mr. Jan van Tongeren. Regarding technical and organizational matters, special mention should be made of the valuable contribution made by Mr. Stefan Schweinfest, Ms. Elene Pfond, Ms. Juana Sanchez- Galvan and Ms. Anu Vempaty. The project was carried out under the responsibility of Ms. Cristina Hannig. 10 INTRODUCTION 0.1. This is one of a series of handbooks prepared by the United Nations Statistics Division (UNSD) to help countries, particularly developing countries, implement the 1993 System of National Accounts.1 The series also includes the following handbooks which have already been published or soon will be: Integrated Environmental and Economic Accounting;2 Use of the SNA for Transition Economies;3 Input-Output Table Compilation and Analysis;4 Household Accounting: Experiences in the use of Concepts and their Compilation;5 A System Approach to National Accounts Compilation;6 Analytical and Policy Uses of National Accounts.7 0.2. Besides the handbooks prepared by UNSD, other organizations of the Inter-Secretariat Working Group on National Accounts (ISWGNA) such as Eurostat (the Statistical Office of the European Communities), the International Monetary Fund (IMF), and the Organisation for Economic Co-operation and Development (OECD), as well as other international organizations such as the Food and Agriculture Organization (FAO), World Tourism Organization, etc. also prepare handbooks in their specialized fields of statistics. All handbooks published or soon to be published in support of the implementation of the 1993 SNA are announced in the ISWGNA=s SNA News and Notes, a biannual newsletter edited and published by UNSD.8 1The System of National Accounts 1993 was prepared under the auspices of the Inter-Secretariat Working Group on National Accounts which includes the Commission of the European Communities, the International Monetary Fund, the Organisation for Economic Co-operation and Development, the World Bank and the United Nations (United Nations publication, Sales No. E.94.XVII.4). 2United Nations Statistics Division, Studies in Methods, Handbook of National Accounting, Series F, No.61 (United Nations publication, Sales No. E.93.XVII.12). 3Ibid., No.66 (United Nations publication, Sales No. E.96.XVII.11). 4Ibid., No.74 (United Nations publication, Sales No.E99.XVII.9). 5Ibid., No. 75 (United Nations publication, forthcoming in 2000). 6Ibid., No. 77 (United Nations publication, Sales No.E.99.XVII.10). 7Ibid., No. 78 (United Nations publication, forthcoming in 2000). 8SNA News and Notes is published in four UN languages (English, French, Russian and Spanish) and can be accessed on the Internet: http://www.un.org/depts/unsd. Correspondence including requests for free subscriptions may be addressed to: UNSD, room DC2-1720, New York, NY 10017, United States of America, Tel.: 1(212) 963- 4854; fax:1(212) 963-1374; e-mail: [email protected].