UNIT 15 CONSOLIDATED ACCOUNTS OF

A NATION: THE BASIC

STRUCTURE
Structure
15.0

Objectives

15.1

Introduction

15.2

Types of Consolidated Accounts of the Nation

15.3

Presentation of Consolidated Accounts of the Nation

15.4

The Basic Format of Consolidated Accounts

15.5

Disaggregation of Consolidated Accounts of the Nation

15.6

Consolidated Accounts of India

15.7

Let Us Sum Up

15.8

Key Words

15.9

Some Useful Books

15.10 Answers or Hints to Check Your Progress Exercises

15.0

OBJECTIVES

After going through this unit, you should be able to:

z

discuss the meaning and importance of consolidated accounts of the nation;

list the types of consolidated accounts and describe their presentation;

describe disaggregation of consolidated accounts; and

present an overview of the consolidated accounts of India.

15.1

INTRODUCTION

The consolidation of accounts, in simple words, would mean integrating and

combining the accounts of all the sectors of the economy. Since the focus of
these accounts is larger, the consolidated accounts of a nation give a summarized
view of the economic transactions, which take place in an economy. More
specifically, they depict an aggregated picture of the income, product,
expenditures and other such macro economic variables.
The analysis of consolidated accounts, therefore, would give a comprehensive
picture of the macro-economic behaviour of the country. In the process of this
analysis, one gets a fair idea about the economic conditions and the strategic
inter-connections between various facets of the economy.

33

Classification of Economic
Transactions

15.2

TYPES OF CONSOLIDATED ACCOUNTS OF

THE NATION

There are four consolidated accounts of the nation. These are as under:
Account 1: Gross Domestic Product and Expenditure Account
Account 3: National Disposable Income and its Appropriation
Account 5: Capital Finance Account
Account 6: External Transactions Accounts
In consolidated accounts, the sector accounts are put together. For instance,
there are five different accounts for each sector (as per SNA system), taking
the nation as a whole. These sector accounts are consolidated into Production,
Consumption Expenditure and the Capital Formation accounts. These three
are further aggregated and consolidated into a single account named as Gross
Domestic Product and Expenditure Account. Income and Outlay accounts of
sectors have been consolidated into National Disposable Income and its
Appropriation Account. Capital Finance Accounts of sectors are consolidated
into Capital Finance Accounts of the nation. External transaction account
records external transactions of the nation. This account serves two purposes:
First, it records all the economic activities dealing with foreign transactions of
an economy. Second, it makes the national accounting system completely
compatible and articulated as it fulfills the requirement of double entry book
keeping. In this way, all transactions, domestic or foreign are recorded twice
in the system.

15.3

PRESENTATION OF CONSOLIDATED
ACCOUNT OF THE NATION

The accounts, in general, can be presented in many ways. One important way
is the conventional system, in which debits are taken on one side and credits
on the other. The second important way is presentation of accounts through
equations showing different types of accounts. The third different method is
with the help of a flow diagram. It is also known as diagrammatic representation.
This method is often considered economical as one arrow can be used to
represent credit and debit at the same time.
The fourth method is known as matrix approach. In this method, all the
transactions taking place between different sectors or accounts are shown in a
set of rows and columns. Rows represent credits and columns represent debit.
Since, as it has already been shown, a credit by one sector is a debit for another,
any transaction will appear in one tranactors row and in another transactor
column. Thus, a simple matrix can be constructed to represent the different
transactions taking place in an economy.
The main advantage of this presentation is that the two aspects of transactions
are recorded by a single entry and can be observed more quickly. It is space
saving and more analytical.
34

It may be mentioned that matrix approach can further be extended to construct

a similar matrix for inter-industry flows. That implies, transactions, which

Consolidated
Accounts of a Nation:
The Basic Structure

take place between different industries can also be shown through rows and
columns. Such a matrix is termed as an input-output table.
In this chapter, we stick to the conventional approach of representing the
accounts as other approaches are beyond the scope of this chapter.

15.4

THE BASIC FORMAT OF CONSOLIDATED

ACCOUNTS

The format of consolidated accounts of the nation is discussed below in Table 1.

Table 1: Consolidated Accounts of the Nation

Debit or Outgoings(Rs.)

Credit or Incomings(Rs.)
6.Government final consumption 165
expenditure (=12)
7.Private final consumption 659
expenditure (=13)

1 Compens of employees(=15)

596.

2.Operating Surplus (=17)

216

3. Conspn of fixed capital(=27)

74

8.Increase in stocks(=22)

4. Indirect taxes (=19)

137

5. Less Subsidies (=20)

23

9.Gross
fixed
capital 161
formation (=23)
10.Exports of goods and 196
services (=32)

Gross domestic
market price

product

at 1000

23

11.Less imports of goods and 204

services (=36)
Expenditure on gross domestic 1000
product at market price

Account 3. National Disposable Income and Its Appropriation

Outgoings
12.Govt final consp exp (=6)

165

13. Pvt final consp exp (=7)

659

14. Saving (=26)

106

Appropriation of disposable 930

income

Incomings
15. Compen of employees
from domestic activities
(=1)
16. Compensation of
employees from ROW
(=33-37)
17. Operating surplus (=2)
18. Property & entrepreneurial
income from ROW, net
(=34-38)
19. Indirect taxes (=4)
20. Less Subsidies (=5)
21. Other current transfers
from ROW, net (=35-39)
Disposable Income

596

216
19

137
23
-15
930

35

Classification of Economic
Transactions

Account 5. Capital Finance

Outgoings
22. Increase in Stocks (=8)
23
23. Gross fixed cap forma 161
(=9)
24. Purchases of intangible
assets from ROW, net
(=44)
25. Net lending to ROW -4
(=30)
Gross accumulation
180
29. Net acquisition of 67
financial assets (=45)

Net acquisition of financial 67

assets

Incomings
26. Savings (=14)
27. Consp of fixed capital (=3)
28.

Capital transfers
ROW, net (=42)

from

Financing gross accumulation

30. Net lending to the rest of
the world (=25)
31. Net incurrence of liabilities
(=43)
Net incurrence of liabilities
and net lending to the rest of
the world

Account 6. External Transactions

Payable

106
74
0

180
-4
71
67

Receivable

Current transactions
32. Exports of goods and
services (=10)
33. Compen of employees
from ROW (=16+37)
34. Property &
entrepreneurial income
from ROW (=18+38)
35. Other current transfers
from the rest of the
world (=21+39)

Current receipts

196
8
39

15

258

36. Imports of goods and

20
services (=11)
4
37. Compen of employees to 8
ROW (=33-16)
38. Property &
20
entrepreneurial income
to ROW (=34-18)
39. Other current transfers
30
to ROW (=35-21)
40. Surplus of the nation on
current transactions
(=41)
Disposable of current receipts

-4

25
8

Capital Transactions
41. Surplus of the nation on -4
current transactions
(=40)
42. Cap trf from ROW,net 0
(=28)

36

43. Net incurrence of

foreign liabilities (=31)
Receipts

44. Purchases of intangible 0

assets from ROW, Net
(=24)
45. Net acquisition of
67
foreign financial
liabilities (=29)

71
67

Disbursements

67

In the above format showing consolidated accounts, each transaction in the

beginning has been assigned a serial number. The same transaction has also
been assigned a figure in the bracket at the end. This indicates that the given
entry is repeated on the reverse side in some other account. For example,
1(=15) indicates that the entry 1 in account 1 has its reverse entry with serial
number 15, which is found in Account 3.

Consolidated
Accounts of a Nation:
The Basic Structure

It may be also be noticed that in account 6, some entries relating to the Rest of
the World, like 16, 18, and 21 have been entered on net basis in Account 3.
However, their reverse entries are entered on gross basis in Account 6. For
example, in Account 3, entry 16, i.e. compensation of employees from the rest
of the world is taken on a net basis (i.e. receipt less payment). Its reverse entry
in Account 6 is in two parts - entry 33 as a receipt and entry 37 as a payment.
Entry 14 i.e. saving in Account 3 is net saving not gross saving. Net saving
plus consumption of fixed capital adds up to gross saving.
A careful review of the above mentioned accounts indicate the following:
1)

Gross Domestic Product and Expenditure Account is based on

domestic concept of product and its composition. First three items
represent gross payments made for the purchases of factor services. This
amounts to GDP at factor cost. By considering item 4 and 5, we get GDP
at market prices.
On the credit side, item 6, i.e., government final consumption expenditure
is estimated as the sum total of government expenditure on intermediate
consumption, compensation of employees, consumption of fixed capital,
and indirect taxes minus commodity and non commodity sales. It is known
as services produced by the producers of government services for own
use. Item 7 is final consumption expenditure of resident households on
the domestic market plus direct purchases abroad by resident households
plus services produced by producers of non-profit services for own use.
The next two items (8 and 9), i.e., increase in stocks and gross fixed capital
formation represent gross domestic capital formation.
This account basically shows the allocation of factor incomes (items 1-5)
on the one hand, and demand for final products generated by the domestic
sources [which includes consumers (Items 6+7), and investors (Items 8+9)]
and foreign source (Item 10 and 11) on the other.
This account holds a special significance as it helps in estimating GDP at
market prices through expenditure as well as income methods. The credit
side gives final expenditure method, and the debit side gives incomedistribution method to estimate GDP at market prices.

2)

National Disposable Income and its Appropriation Account: This gives

national aggregates, such as, sources of net national disposable income
and its allocation between consumption and saving. On the credit side,
items 15 and 17 put together represent NDP at factor cost. This together
with item 16 and 18 would give the value of net national income at factor
cost. The sum of items 15 to 20 equals NNP at market prices. If all the
items 15 to 21 are taken, one would get Net National Disposable income.
This includes NNP at market prices and Net current transfers from the
rest of the world.
On the debit side, Items 12 and 13 record consumption expenditure of
residents. Item 14 records saving. It is net saving as distinguished from

37

Classification of Economic
Transactions

gross saving which equals net saving + provision for depreciation.

Adding all together, one will get Net National Disposable Income.
3)

Capital Finance Account: This account depicts the sources of gross

domestic capital formation (also known as domestic formation of gross
physical assets) and the forms in which the capital accumulation takes
place in the economy.
The account, as shown above, has two parts. The account shows the real
flows above the dotted lines and financial flows below the dotted line.
The financial flows constitute both the financial assets and liabilities,
including transactions in gold, currency, deposits, bills, bonds, equities,
loans, trade credits etc.
On the debit side of this account, Item 22 and 23 taken together shows
gross domestic capital formation. Adding items 24 and 25, i.e., investment
in intangible assets and formation of financial assets by resident economic
agents respectively, one gets capital accumulation by resident economic
agents. Intangible assets are those assets, which are not matched by
liabilities. Patents, copyrights and trademarks, leases in respect of land
and exclusive rights to exploit mineral deposits etc. are some good
examples. The debit side is basically the use side of the capital
accumulation.
The credit side of the account portrays sources of financing capital
formation. It enlists items 26 to 31. Items 26 and 27 together represent
gross savings out of current income. The other source is the capital transfers
from the rest of the world.

4)

External Transactions Accounts: It explains all the external transactions

of resident economic agents. While recording transactions with the rest
of the world, all the transactions of the first three consolidated accounts
are considered. It is because exports by a country to the rest of world are
incomings of that country, but it is an outgoing item for the rest of the
world. The same way, imports are outgoings of the given country, but
they are incomings for the rest of world. Thus, each external transaction
indicated in the previous accounts has got its counterpart in this account.
The system is fully articulated and balanced.
This account has two parts current and capital transactions. The different
entries recorded in both these accounts show that the reverse entries of
external transactions of the first three consolidated accounts. The entries
showing different transactions have already been discussed on the above
pages.

Check Your Progress 1

1)

What are the different types of consolidated accounts?

...................................................................................................................
...................................................................................................................
...................................................................................................................

2)

How are the consolidated accounts of a nation presented?

...................................................................................................................

38

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...................................................................................................................

3)

What is Capital Finance Account?

...................................................................................................................
...................................................................................................................
...................................................................................................................

15.5

Consolidated
Accounts of a Nation:
The Basic Structure

DISAGGREGATION OF CONSOLIDATED
ACCOUNTS OF THE NATION

The macro level transactions discussed in the consolidated accounts can further
be disaggregated as per the classification of transactions. Here, two points are
worth noting. One, the classification of different transactions has to be done
on some basis, may be, in the form of institutional sectors. These sectors may
be named as households, private non-profit institutions, corporate and quasicorporate enterprises, financial institutions, general government and nonfinancial enterprises. Two, there will be an overlapping between the different
transactions.
Disaggregation, thus, requires a simultaneous disaggregation of different related
accounts. For instance, if gross domestic product account has to be
disaggregated, it would require an analysis of the production accounts of the
producers accounts. These would include, industries, producers of government
services and private non-profit services to households, and domestic services
to households. Simultaneously, there is need to undertake an analysis of income
and outlay and capital finance accounts of various institutional sectors discussed
above. The detailed study of disaggregated consolidated accounts is beyond
the scope of this chapter.

15.6

CONSOLIDATED ACCOUNTS OF INDIA

It has already been brought out on the above pages that consolidated accounts
are required to a comprehensive picture of the macro-economic behaviour of
the country and also for sound policy making purposes.
In the case of India, consolidated accounts are prepared by Central Statistical
Organisation, Ministry of Planning and Programme implementation,
Government of India. The formats in which these accounts are presented are
given below to acquaint the student with the Indian practice. The figures are
hypothetical
Account 1: Gross Domestic Product and Expenditure (approximately
rounded) (at current prices )
[ 2003-04; Rs. 000crores]
1.1
Net domestic product at factor cost
2267
1.2
Consumption of fixed capital
254
1.3
Indirect taxes
323
1.4
Less subsidies
83
1.5
Gross domestic product
2761
1.6
Government final consumption expenditure
312
1.7
Private final consumption expenditure
1762
1.8
Gross fixed capital formation
627
1.9
Changes in stocks
8
1.10 Exports of goods and services
408
1.11 Less imports of goods and services
444
1.12 Discrepancies
86
1.13 Expenditure on gross domestic product
2761

39

Classification of Economic
Transactions

Account 3: National Disposable Income and its Appropriation (at

current prices )
[ 2003-04; Rs. 000 crores]
3.1
3.2
3.3
3.4

Govt final consumption expenditure

Private final consumption expenditure
Saving
Statistical discrepancy

312
1762
523
0.5

3.5

Appropriation of national disposable income

2598

3.6
3.7
3.8

2267
(-)3

3.9
3.10
3.11

Net domestic product at factor cost

Compensation of employees from the rest of world
Property & entrepreneurial income from the rest of
world, net
Indirect taxes
Less subsidies
Other current transfers from the rest of world

3.12

Disposable income

2598

(-)11
323
83
105

Account 5: Capital Finance (at current prices )

[ 2003-04; Rs. 000crores]
5.1
5.1.1
5.1.2
5.1.3
5.2
5.3

Gross domestic capital formation

Gross domestic fixed capital formation
Change in stocks
Errors and omissions
Purchase of intangible assets n.e.c. from rest of the
world
Net lending to the rest of world

5.4

Gross accumulation

5.5
5.6
5.7

Domestic saving
Consumption of fixed capital
Capital transfers from rest of world, net

304
272
33
(-)1
(-)20
284
171
112
1
284

5.8

40

Finance of gross accumulation

Account 6: External Transactions (approximately rounded)

(at current prices )
[ 2003-04; Rs. 000 crores

Consolidated
Accounts of a Nation:
The Basic Structure

Current transactions
6.1
6.2

Exports of goods andservices

Compensation of employees from the rest of
world
Property & entrepreneurial income from the
rest of world
Other current transfers from the rest of world
Adjustment of merchandise exports to the
change of ownership basis

408

6.6

Current receipts

533

6.7
6.8

433

6.12

Imports of goods and services

Compensation of employees from the rest of
world
Property & entrepreneurial income from the
rest of world
Other current transfers from the rest of world
Adjustment of merchandise imports to the
change of ownership basis
Surplus of the nation on current transactions

6.13

Disposal of current receipts

533

6.3
6.4
6.5

6.9
6.10
6.11

0.7
15
106
3

4
26
1.6
9
50

.
Capital transactions
6.14
6.15
6.16

Surplus of the nation on current transactions

Capital transfers from the rest of world
Net incurrence of foreign liabilities

50
2.6
84

6.17

Receipts

136

6.18
6.19

Purchase of intangible assets

Net acquisition of foreign financial assets

136

6.20

Disbursements

136

Check Your Progress 2

1)

What is the meaning of consolidated accounts of the nation? Explain with

the help of Indian case.
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................

41

Classification of Economic
Transactions

2)

How are the consolidated accounts disaggregated?

...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................
...................................................................................................................

15.7

LET US SUM UP

The consolidation of accounts refers to combining the accounts of all the sectors
of the economy. They depict an aggregated picture of the income, product,
expenditures and other such macro economic.
There are four consolidated accounts of the nation. These are as under: Account
1: Gross Domestic Product and Expenditure Account; Account 3: National
Disposable Income and its Appropriation; Account 5: Capital Finance Account;
Account 6: External Transactions Accounts.
The accounts, in general, can be presented in many ways. The most important
methods used for presenting the accounts are known as the conventional system,
the equation method, the diagrammatic method, and the matrix approach.
However, the most usual approach towards presenting the accounts is showing
the accounts in the balance statement. India follows almost the established
international procedures in presenting its consolidated accounts.

15.8

KEY WORDS

Capital Finance Account: This account depicts the sources of gross domestic
capital formation (also known as domestic formation of gross physical assets)
and the forms in which the capital accumulation takes place in the economy.
Consolidated accounts of the nation: These accounts give an integrated and
combined view of all the sectors of the economy.
External Transactions Accounts: It explains all the external transactions of
resident economic agents. While recording transactions with the rest of the
world, all the transactions of the first three consolidated accounts are considered
in this account.
Gross Domestic Product and Expenditure Account: This concept is based
on domestic concept of product and its composition. This account basically
shows the allocation of factor incomes on the one hand, and demand for final
products generated by the domestic sources like consumers and investors and,
foreign source on the other. This account helps in estimating GDP at market
prices through expenditure as well as income methods
Matrix: It refers to a square array of ordered set of numbers {a1, a2, , an}
from a field F.
National Disposable Income and its Appropriation Account: This account
relates to the sources of net national disposable income and its allocation
between consumption and saving.
42

15.9

SOME USEFUL BOOKS

Consolidated
Accounts of a Nation:
The Basic Structure

Beckerman, Wilfred., (1980), An Introduction to National Income Analysis,

Wiedenfeld and Nicolson: London (Chapters 5 )
Hicks, J.R., M.Mukherjee, and S.K.Ghosh, (1984), The Framework of the
Indian Economy- An Introduction to Economics, OUP, Delhi.
Lal. Ram N, 1985. The System of National Accounts and Material Balances,
Allied Publishers Pvt Ltd, Delhi.
Central Statistical Organisation (CSO), National Accounts Statistics, (2005).
Samuelson, P.A. and W.A. Northaus, (1998), Economics, McGraw- Hill Book
Company: New York. (Chapter 6)
United Nations, 1995. National Accounts Statistics Main Aggregates and
Detailed Tables. Part II and I.

15.10 ANSWERS OR HINTS TO CHECK YOUR

PROGRESS EXERCISES
Check Your Progress 1
1)

See section 15.2

2)

See section 15.3

3)

See section 15.4

Check Your Progress 2

1)

See section 15.6

2)

See section 15.5

43