Fundamentals of Double-Entry Account Bookkeeping (Pt. III of III)

The System of National Accounts (SNA) may seem overwhelming for anyone who is just beginning to comprehend how the Double-Entry Account Bookkeeping System. It is already a daunting task on its own to determine the Quantities of Kapital and Schuld for a single nation’s OECD-Type Student Economy, the Market/Mixed Economy, the Fractional-Reserve Banking System, Parliament, or its digital infrastructure on the World Wide Web (WWW). To determine the Quantities of Kapital and Schuld for all five and how they compare against the rest of the Liberal International Economic Order (LIEO) makes things even more complicated. Fortunately, the United Nations (UN) was courteous enough to include a “sequence of accounts” in their 2008 edition of the United National System of National Accounts (UNSNA).

The Who, The What, The Why, and The How

A country’s SNA contains five accounts, which are understood to be Net Worth items. Recall earlier that the Net Worth represents Equities as the difference between Assets and Liabilities in Double-Entry Account Bookkeeping. Each account enables a political scientist, an economist, an accountant and auditor as well as a statistician to answer four questions from the economic and financial data:

  1. “Who takes action in the economy?”
  2. “What do they do?”
  3. “Why do they take action?”
  4. “How are the actions known?”

The “Who” refers to everyone who is capable of creating Kapital and Schuld within Production for Profit and Production for Utility. The ‘everyone’ in this context are identified as “institutional actors.” An institutional actor has to be capable of generating Kapital from the provision of goods and services, create goods and services through its own economic activities, accept Schuld in form of Liabilities, and has a complete Balance Sheet of Assets and Liabilities to provide a documentation of Equities as Net Worth. In both Production for Profit and Production for Utility, the UN identified the existences of five institutional actors. For the sake of reference, I am also including their closest equivalents for the Work-Standard’s Production for Dasein:

  • “Non-Financial Corporations” ↔ Market/Mixed Economy
  • “Financial Corporations” ↔ Fractional-Reserve Banking System
  • “General Government” ↔ Parliament
  • “Households” ↔ OECD-Type Student Economy
  • “Non-Profit Institutions Serving Households (NPISHs)”

What is really interesting about the fifth category is that it can encompass certain economic activities conducted by Parliament, the OECD-Type Student Economy, and the World Wide Web (WWW). A NPISH could be any charity, philanthropy, or other economic organization under Production for Utility whose intended function to provide goods and services to Households.

The “What” represents the production and consumption of goods and services as well as the Kapital and Schuld incurred on the associated production processes. It also denotes how much Kapital and Schuld were also incurred from the sales and purchasing of goods and services as well as the savings and incomes.

The “Why” will tell us the Incentives and aims of the production processes. In Liberal Capitalism, there are Incentives for every conceivable economic activity. Certain economic activities are facilitated to create a Profit, whereas others are designed to promote the Social Utility of Civil Society.  

And the “How” is the methodology by which all economic activities as well as the Quantities of Kapital and Schuld are recorded for both Production for Profit and Production for Utility. For obvious reasons, the Double-Entry Account Bookkeeping System is employed to record all production processes and transactional sales. However, the specific accounting technique used to process them as part of the SNA is called the “Full Accrual Accounting Method,” which will be discussed in a later Entry. What can be said here is that the Full Accrual Accounting Method enables the ability to process both the Quantity of Kapital and Quantity of Schuld regardless of whether they are available or not. They can be recorded despite not being transferred between institutional actors because there are “financial obligations” which must be met. It is precisely because of the “financial obligations” that people do not need to pay for something now with Kapital; they can always pay it back later by accepting Schuld as a result.

The Five Primary Accounts

In any case, once all have been recognized, the next steps are to identify their economic activities for creating Kapital and Schuld, the Incentives governing their economic decision-making, and the means of production through which they are creating Kapital and Schuld. This should sound familiar to anyone who has read The Work-Standard (2nd Ed.), specifically all of the Entries that made the “Total Productive Potential (TPP)” entertainable under the Work-Standard. But instead of finding the Qualities of Arbeit and Geld to obtain the TPP, the SNA involves finding the known Quantities of Kapital and Schuld to find the GDP (Gross Domestic Product). Thus, the five primary accounts used in the SNA are:

  1. Current Account
  2. Accumulation Account
  3. Balance Sheet
  4. Goods and Services Account
  5. Accounts for Rest of the World

The “Current Account” describes how Kapital and Schuld are being created within a nation from economic activities and how they are distributed across Civil Society as income. It is divided into the Production Account, the Generation of Income Account, two Allocation of Primary Income Accounts (Entrepreneurial Income Account and Allocation of Other Primary Income Account), the Secondary Distribution of Income Account, and two Use of Income Accounts (Use of Disposable Income Account and Use of Adjusted Disposable Income Account).

The “Accumulation Account” documents the changes in the valuations of Assets held by the economic and government organizations of Parliament, Civil Society, and Private Citizens. There are four secondary accounts. Those are the Capital Account, the Financial Account, the Other Changes in Assets Account, and the Revaluation Account. Changes to Prices, the number of Assets owned by economic organizations, and whether those changes are related to transactional sales or not are covered here. All four accounts are compiled together in the Balance Sheets.

The “Balance Sheets” provide details on the Value of Assets owned and the Liabilities that are owed by the five aforementioned institutional actors. They can be broken down to include individual Professions, Enterprises, Industries, and Economic Sectors of a Market/Mixed Economy. But overall, they will include the Opening Balance Sheet, the Total Changes in Assets, and the Closing Balance Sheet.

The “Goods and Services Account” places greater emphasis on the inputs and outputs of production and consumption for the Market/Mixed Economy. There is less emphasis on the Kapital and Schuld being created and more about how much is being created within a given timeframe. Therefore, the amount of goods and services consumed by the Market/Mixed Economy is equal to the amount of goods and services that the Market/Mixed Economy produces.

If the Market/Mixed Economy is importing or exporting as part of a Free Trade Agreement (FTA), the Balance of Trades and Payments will be included in a fifth primary account, the “Accounts for the Rest of the World.”

For their purposes (as opposed to our own), the Quantities of Kapital and Schuld are the most paramount. Based on the economic and financial data, the Liberal Capitalists would then proceed to determine a Liberal Capitalist regime’s Gross Domestic Product (GDP) and Gross National Income (GNI). They can expand their research further to include the annual extent to which the Inflation/Deflation is affecting the GNI and how much Kapital is spent on goods and services and saved for later expenses, both with and without Inflation/Deflation. Those are factored as the Net National Income (NNI), Gross National Disposable Income (GNDI) and Net National Disposable Income (NNDI) respectively.

Categories: Work-Standard Accounting Practices

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