As nations and their economies evolved during the 20th century, a need to develop a system that accurately measured aggregate economic activity arose. This system is called the national account system, or NAS.
In a national account system, accounting techniques are combined to measure the economic activity of a nation. It includes elements of double-entry accounting, thus requiring two entries of an account with different characteristics to correspond with each other. For example, there can be an entry called “Production” and another one called “Income” as a result of the first entry. Although it has characteristics of business accounting, the national account system is actually based on an economic foundation, since it is mainly concerned with collecting data. This type of data is produced from factors such as demand, output, consumption, and investment and it is used for analyzing the economic growth and development in a country.
The concept behind the national accounts system originated during the Great Depression. The severe worldwide economic crisis intensified the need for a system that could evaluate the performance, structure, behavior, and decision making of a country’s economy in its entirety. British-Australian economist Colin Clark came up with the gross national product—best known as GNP—to measure the annual market value of products and services from a country. Another British economist, Richard Stone, was the first person to track economic activities with double-entry accounting. Such contributions laid the groundwork for the national accounts system, which the United States began to publish in 1947. By the time the United Nations published A System of National Accounts and Supporting Tables five years later, several European nations had followed the US’s example. The most recent version of the international standard was released in 2008.
An NAS includes what the economic actors of a country—people, government, corporations—produce (output), make (income), and spend (expenditure). Also taken into consideration are a country’s wealth (net worth) and its relations with other countries. National accounts use a stock and flow format, in which the former is measured at the end of a period and the latter is measured over a period. Although they contain a variety of aggregate measures, the most commonly cited one is gross domestic product, which used to indicate a country’s standard of living.
Since the 1980s, new metrics have been introduced, namely generational accounting (fiscal burden placed on future generations) and green national accounting (considering the effect of environmental costs on the financial results of operations). National statistical offices or central banks are usually responsible for putting these accounts together, comprising data derived from sources that include surveys, regulatory data, and administrative and census records.
The national account system has become the basis for economic analysis, as well as for governments to formulate economic policy. The System of National Accounts, or SNA, remains the international standard, used by all countries. The SNA is designed to accommodate each country’s needs, in accordance with its stage of economic development.
Derek Morgan writes on finance, law, accounting, banking, business and other related topics. Readers who found this piece fascinating may want to consider the financial accounting jobs with moneyjobs.com as a means to enter the world of accounting.