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Concepts and definitions

Actual final consumption

Actual final consumption consists of goods or services that are acquired by households, non-profit institutions serving households and general government for the direct satisfaction of human needs, whether individual or collective.

Some of the goods and services may be provided as social transfers in kind.

Actual final consumption of households comprises goods and services acquired by households themselves and goods and services obtained from non-profit institutions or general government as social transfers in kind. The latter includes health, educational and social services.

Actual final consumption of general government comprises collective services provided by general government for all members of a community or of a certain group. Examples of these are general administration, national defence and environmental protection.

At current prices

At nominal prices prevailing at each point.

Basic price

Basic price is a price concept in the national accounts. The basic price is the price receivable by the producers from the purchaser for a unit of a good or service produced as output, minus any tax payable on that unit as a consequence of its production or sale (i.e. taxes on products), plus any subsidy receivable on that unit as a consequence of its production or sale (i.e. subsidies on products). It excludes any transport charges invoiced separately by the producer. It includes any transport margins charged by the producer on the same invoice, even when they are included as a separate item on the invoice. (subsidies on products).

Budget deficit

Budget deficit in Finland refers to the net financing requirement of the state budget, calculated on cash basis as the difference between state income and expenditure before borrowing and amortisations.

National accounts data on deficit/surplus (net borrowing/lending) are obtained from net financing requirement via several correction items. In national accounts, net borrowing/lending may not be influenced by items representing financial transactions (changes in receivables and liabilities), such as borrowing, received loan repayments or other financial investments.

More incidental items are represented by the emission and exchange rate gains and losses which appear in the state budget in so far as they are not included in national accounts interest items. Accounting differences arise where net income of state enterprises that are part of the private sector continue to be treated as part of the public sector for national accounts purposes. Divergences from cash based calculations also arise because of taxes, subsidies and interests being recorded in some cases not on a cash basis but on an accrual basis or a time adjusted basis, and because of other recording or timing differences of a more incidental nature.

Changes in inventories

Changes in inventories are measured by the value of the entries into inventories less the value of withdrawals and the value of any recurrent losses of goods held in inventories. Inventories can consist of materials and supplies, work-in-progress, finished goods and goods for resale.

Compensation of employees

Compensation of employees (D.1) is defined as the total remuneration, in cash or in kind, payable by an employer to an employee in return for work done by the latter during the accounting period.

Compensation of employees is broken down into:

a) wages and salaries (D.11): wages and salaries in cash; wages and salaries in kind;

b) employers’ social contributions (D.12): employers’ actual social contributions (D.121); employers’ imputed social contributions (D.122).

Consumption expenditure by government

Consumption expenditure by government includes 'other non-market output' and income transfers in kind. 'Other non-market output' is derived by subtracting production for own final use and sales of non-market products from output. Consumption expenditure by government is subdivided in two categories: individual and collective consumption expenditure. Consumption expenditure by government includes e.g. government financed school, health, social and administration services.

Consumption of fixed capital

Consumption of fixed capital (P.51C) represents the amount of fixed assets used up, during the period under consideration. Consumption is the result of normal wear and tear and foreseeable obsolescence, including a provision for losses of fixed assets as a result of accidental damage which can be insured against.

Consumption of fixed capital should be distinguished from the depreciation shown in business accounts. It refers to the amount of fixed assets used up, during the period under consideration. It should be estimated on the basis of the stock of fixed assets and the probable average economic life of the different categories of those goods.

Disposable income

Disposable income is the balancing item of the current income in the redistribution of income account. It is obtained for each sector by adding current transfers receivable to primary income and by deducting all current transfers payable. It can be used for consumption or saving.

Adjusted disposable income is a corresponding item in the redistribution of income in kind account.

Dwelling

AN.1111. Buildings that are used entirely or primarily as residences, including any associated structures, such as garages, and all permanent fixtures customarily installed in residences. Houseboats, barges, mobile homes and caravans used as principal residences of households are also included, as are historic monuments identified primarily as dwellings.

Examples include residential buildings, such as one- and two-dwelling buildings and other residential buildings intended for non-transient occupancy. Uncompleted dwellings are included to the extent that the ultimate user is deemed to have taken ownership, either because the construction is on own account or as evidenced by the existence of a contract of sale/purchase.

Dwellings acquired for military personnel are included because they are used, as are dwellings acquired by civilian units, for the production of housing services.

ESA 2010

ESA 2010 = European System of Accounts 2010, the EU's revised Regulation that steers the compilation of economic statistics.

Entrepreneurial income

In national accounts, entrepreneurial income corresponds to the operating surplus or mixed income:

• property income receivable in connection with financial and other assets belonging to the enterprise (on the resources side);
• interest on debts payable by the enterprise and rents payable on land and other non-produced tangible assets rented by the enterprise (on the uses side).

Property income payable in the form of dividends or reinvested earnings on direct foreign investment is not deducted from entrepreneurial income.

Exports of goods and services

Exports of goods and services consist of transactions in goods and services (sales, barter, gifts or grants) from residents to non-residents.

Final consumption expenditure

Final consumption expenditure consists of expenditure incurred by resident institutional units on goods or services that are used for the direct satisfaction of individual needs or wants, or the collective needs of members of the community. Final consumption expenditure may take place on the domestic territory or abroad. Final consumption expenditure is incurred by households, non-profit institutions serving households and general government. Non-financial corporations, financial and insurance corporations do not have final consumption expenditure.

Financial corporations

The financial corporations sector includes the sub-sectors: the central bank, other monetary financial institutions and other financial intermediaries.

The central bank's function is to issue currency, to maintain the internal and external value of the currency and to hold all or part of the international reserves of the country. The sector includes the national central bank (Bank of Finland) also in the case where it is part of a European System of Central Banks.

Other monetary financial institutions' principal business is to receive deposits from other institutional units and, for their own account, to grant loans and/or to make investments in securities. The sector includes deposit banks as well as money market funds.

Other financial intermediaries are engaged in financial intermediation by incurring liabilities in forms other than deposits or insurance technical reserves. The sector includes credit institutions that have been granted concession by the Finnish Financial Supervision Authority, as well as other institutional units that mediate finance, i.a. investment funds, development capital companies, asset holding companies, pawnbroker offices, and e.g. deposit bank holding corporations.

Financial intermediation services indirectly measured (FISIM)

FISIM refers to indirect financial intermediation services produced by providers of financial intermediation services (deposit banks, other monetary financial institutions practising financial intermediation, and other monetary financial institutions) but not charged separately to the customers. Institutions that practise financial intermediation services provide services for which they charge their customers indirectly by means of paying their depositors interest at a lower rate than the rate that the institutions charge their borrowers (interest rate margin). The interest rate margin covers the other expenses of the activity and produces a surplus. In national accounts, the result of this activity must be measured indirectly, which explains why the phenomenon is referred to as "indirect financial intermediation services". The English abbreviation FISIM (financial intermediation services indirectly measured) is frequently used in Finnish and Swedish texts.

General government total expenditure

General government total expenditure describes the sum of general government's expenditure type. Consolidated expenditure excludes property expenditure, income transfers and capital transfers between general government sub-sectors. Acquisitions of goods and services between general government sub-sectors are not consolidated, however. Thus, total expenditure is to some extent gross expenditure.

The General government, total (S.13) level is usually viewed as consolidated and sub-sector data as unconsolidated.

The ratio of total general government expenditure to gross domestic product is also called the expenditure ratio.

General government total expenditure is calculated by adding together the following expenditure types:

Consolidated/unconsolidated total expenditure =

P22K intermediate consumption or acquired services and goods +

D1K Compensation of employees, payable +

D29K Commodity taxes paid +

D3K Subsidies paid +

D4K Consolidated/unconsolidated property expenditure paid +

D5K Income taxes paid +

D62K Social benefits other than social transfers in kind, payable +

D632K Social transfers in kind, payable

D7K Consolidated/unconsolidated current transfers paid +

D9K Consolidated/unconsolidated capital transfers paid +

P5K Gross capital formation, i.e. investments

NP Net acquisitions of non-produced assets

Gross capital stock

Gross capital stock describes the value of producers' assets still in use, valued at prices payable for 'corresponding new' assets regardless of their age and actual condition. Gross capital stock includes the cumulated value of past investments minus the accumulated reduction.

Gross domestic product

GDP, gross domestic product at market prices is the final result of the production activity of resident producer units. It can be defined in three ways: as the sum of gross value added of the various institutional sectors or the various industries plus taxes and less subsidies on products; as the sum of final uses of goods and services by resident institutional units (final consumption, gross capital formation, exports minus imports); as the sum of uses in the total economy generation of income account (compensation of employees, taxes on production and imports less subsidies, gross operating surplus and gross mixed income). (ESA 1995 8.89.)

Gross fixed capital formation

Gross fixed capital formation consists of resident producers' acquisitions, less disposals, of fixed assets. Fixed assets are tangible or intangible assets produced as outputs from processes of production that are themselves used repeatedly, or continuously, in processes of production for more than one year.

Gross national income

Gross national income represents total primary income receivable by resident institutional units: compensation of employees, taxes on production and imports less subsidies, gross operating surplus, gross mixed income and property income. Gross national income equals GDP minus primary income payable by resident units to non-resident units plus primary income receivable by resident units from the rest of the world. National income is an income concept, which often is more significant if expressed in net terms, i.e. after deduction of the consumption of fixed capital. (ESA 1995 8.94.)

Holding corporation

Holding corporations are institutional units whose main function is to control and direct a group of subsidiaries.

Holding gain and loss

Holding gains and losses result from changes in the prices of assets. They occur on all kinds of financial and non-financial assets, and on liabilities. Holding gains and losses accrue to the owners of assets and liabilities purely as a result of holding the assets or liabilities over time, without transforming them in any way.

Holding gains and losses measured on the basis of current market prices are called nominal holding gains and losses. These may be decomposed into neutral holding gains and losses, reflecting changes in the general price level, and real holding gains and losses, reflecting changes in the relative prices of assets.

Imports of goods and services

Imports of goods and services consist of transactions in goods and services (purchases, barter, gifts or grants) from non-residents to residents.

Individual consumption expenditure

Individual consumption expenditure is the sum of households' final consumption and final consumption expenditure of non-profit institutions serving households.

Institutional unit

The institutional unit is an elementary economic decision-making centre. A resident unit is regarded as constituting an institutional unit if it has decision-making autonomy in respect of its principal function and either keeps a complete set of accounts or it would be possible and meaningful, from both an economic and legal viewpoint, to compile a complete set of accounts if they were required. Decision-making autonomy means that institutional units are capable of owning goods and assets, of incurring liabilities and of engaging in economic activities and transactions with other units in their own right.

The following are deemed to be institutional units:

a) units which have a complete set of accounts and autonomy of decision:

(1) private and public corporations

(2) co-operatives or partnerships recognised as independent legal entities

(3) public producers which by virtue of special legislation are recognised as independent legal entities

(4) non-profit institutions recognised as independent legal entities

(5) agencies of general government.

b) units which have a complete set of accounts and which are deemed to have autonomy of decision: quasi-corporations

c) units which do not necessarily keep a complete set of accounts, but which by convention are deemed to have autonomy of decision:

(1) households

(2) notional resident units.

The institutional units are grouped together into five mutually exclusive institutional sectors which together make up the total economy. The sectors (each sector is also divided into sub-sectors) are composed of the following types of units:

a) non-financial corporations

b) financial corporations

c) general government

d) households

e) non-profit institutions serving households.

Intermediate consumption

Intermediate consumption consists of the value of the goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital. The goods and services may be either transformed or used up by the production process.

Products used for intermediate consumption should be recorded and valued at the time they enter the process of production. They are to be valued at the purchasers’ prices for similar goods or services at that time.

Market price

The market price in an economic transaction corresponds to the amount paid by the buyer to the seller for an acquisition made in a free trade situation.

With the exception of some variables concerning population and labour, the system of national accounts shows all flows and stocks in monetary terms. The system does not attempt to determine the utility of flows and stocks. Instead, flows and stocks are measured according to their exchange value, i.e. the value at which flows and stocks are in fact, or could be, exchanged for cash. Market prices are thus ESA's basic reference for valuation.

In the case of monetary transactions and cash holdings and liabilities, the values required are directly available. In most other cases, the preferred method of valuation is by reference to market prices for analogous goods, services or assets. This method is used for e.g. barter and the services of owner-occupied dwellings. When no market prices for analogous products are available, for instance in the case of non-market services produced by government, valuation should be made according to production costs. If neither of these two methods are feasible, flows and stocks may be valued at the discounted present value of expected future returns. However, due to the great uncertainty involved, this last method is only recommended as a last resort.

Stocks should be valued at current prices at the time to which the balance sheet relates, not at the time of production or acquisition of the goods or assets that form the stocks. It is sometimes necessary to value stocks at their estimated written-down current acquisition values or production costs.

Mixed income

Mixed income is the balancing item of the generation of income account of unincorporated enterprises in the households sector, corresponding to remuneration for work carried out by the owner and members of his family and including his profits as entrepreneur.

National income

National income is an income concept obtained by deducting consumption of fixed capital from gross national income.

Gross national income represents total primary income receivable by resident institutional units: compensation of employees, taxes on production and imports less subsidies, gross operating surplus, gross mixed income and property income. Gross national income equals GDP minus primary income payable by resident units to non-resident units plus primary income receivable by resident units from the rest of the world.

Net domestic product at market prices

By deducting the consumption of fixed capital from the gross domestic product, we obtain the net domestic product at market prices, NDP.

Net fixed capital stock

Net capital stock describes the cumulated value of past investments minus the accumulated consumption of fixed capital.

Net lending/net borrowing

Net lending/borrowing is a balancing item in the capital account and the fi-nancial account.

Net lending/borrowing corresponds to the amount available to a unit or sec-tor for financing, directly or indirectly, other units or sectors, or the amount which a unit or sector is obliged to borrow from other units or sectors.

The corresponding concept to net lending/borrowing in financial accounts is financial transactions, net. It is the difference between net acquisition of fi-nancial assets and liabilities. If a sector acquires financial assets in excess of the amount of new debt incurred during the period it is a net lender.

Non-resident unit

The total economy is defined in terms of resident units. A unit is said to be a resident unit of a country when it has a centre of economic interest on the economic territory of that country – that is, when it engages for an extended period (one year or more) in economic activities on this territory. The institutional sectors are groups of resident institutional units.

Resident units engage in transactions with non-resident units, that is, units which are residents in other economies. These transactions are the external transactions of the economy and are grouped in the rest of the world account. So, in the accounting structure of the national accounts, the rest of the world plays a role similar to that of an institutional sector, although non-resident units are included only in so far as they are engaged in transactions with resident institutional units. Consequently, as far as coding of classifications is concerned, a specific item for the rest of the world is included at the end of the classification of sectors.

Notional resident units, treated in the system as institutional units, are defined as:

a) those parts of non-resident units which have a centre of economic interest (that is in most cases which engage in economic transactions for a year or more or which carry out a construction activity for a period of less than a year if the output constitutes gross fixed capital formation) on the economic territory of the country;

b) non-resident units in their capacity as owners of land or buildings on the economic territory of the country, but only in respect of transactions affecting such land or buildings.

Notional resident unit

Notional resident units are defined as:

a) those parts of non-resident units which have a centre of economic interest (that is in most cases which engage in economic transactions for a year or more or which carry out a construction activity for a period of less than a year if the output constitutes gross fixed capital formation) on the economic territory of the country;

b) non-resident units in their capacity as owners of land or buildings on the economic territory of the country, but only in respect of transactions affecting such land or buildings.

Notional resident units, even if they keep only partial accounts and may not always enjoy autonomy of decision, are treated as institutional units.

Operating surplus, net

Net operating surplus is obtained after deduction of compensation of employees, taxes on production and imports less subsidies as well as consumption of fixed capital from value added. It is the surplus or deficit on production activities before interest, rents or charges and corresponds to the income which the units obtain from their own use of their production facilities.

Output at basic prices

Output at basic prices consists of the products which have been produced in the accounting period. Three categories of output are distinguished: market output, output for own final use, and other non-market output. Output is to be recorded and valued when it is generated by the production process.

Output of services of owner-occupied dwellings

The own-account production of housing services by owner-occupiers falls within the production boundary of the European System of Accounts.

The output of services of owner-occupied dwellings should be valued at the estimated value of rental that a tenant would pay for the same accommodation, taking into account factors such as location, neighbourhood amenities, etc. as well as the size and quality of the dwelling itself.

Price

The value determined in money

Price discrimination

Price discrimination implies that sellers may be in a position to charge different prices to different categories of purchasers for identical goods and services sold under exactly the same circumstances. In these cases, there is no or limited freedom of choice on the part of a purchaser belonging to a special category. The principle adopted is that variations in price are to be regarded as price discrimination when different prices are charged for identical units sold under exactly the same circumstances in a clearly separable market. Price variations due to such discrimination do not constitute differences in volume.

In service industries, for example in transportation, producers may charge lower prices to groups of individuals with typically lower incomes, such as pensioners or students. If these are free to travel at whatever time they choose, this must be treated as a price discrimination. However, if they are charged lower fares on condition that they travel only at certain times, typically off-peak times, they are being offered lower-quality transportation. If price variations are a sign of differences in quality, the variations should be reflected in variations in volume and not in prices.

Primary income

Primary income is the income which resident units receive by virtue of their participation in the production process, and income receivable by owners of financial or other assets in return for placing assets at the disposal of other institutional units. Primary income can be compensation of employees, taxes on production and imports less subsidies, gross operating surplus, gross mixed income or property income. (ESA 1995 8.22.)

Production boundary

The production boundary included in national accounts is essential for defining the coverage of the accounting system.

Production is an activity carried out under the control and responsibility of an institutional unit that uses inputs of labour, capital and goods and services to produce goods and services. Production does not cover purely natural processes without any human involvement or direction, like the unmanaged growth of fish stocks in international waters (but fish farming is production).

Production includes:

a) the production of all individual or collective goods or services that are supplied to units other than their producers (or intended to be so supplied);

b) the own-account production of all goods that are retained by their producers for their own final consumption or gross fixed capital formation. Own account production for gross fixed capital formation includes the production of fixed assets such as construction, research and development activities, the development of software and mineral exploration for own gross fixed capital formation.

Own-account production of goods by households pertains in general to:

(1) own-account construction of dwellings;

(2) the production and storage of agricultural products;

(3) the processing of agricultural products, like the production of flour by milling, the preservation of fruit by drying and bottling; the production of dairy products like butter and cheese and the production of beer, wine and spirits;

(4) the production of other primary products, like mining salt, cutting peat and carrying water;

(5) other kinds of processing, like weaving cloth, the production of pottery and making furniture.

Own-account production of a good by households should be recorded if this type of production is significant, i.e. if it is believed to be quantitatively important in relation to the total supply of that good in a country.

By convention, in the ESA, only own-account construction of dwellings and the production, storage and processing of agricultural products is included; all other own-account production of goods by households are deemed to be insignificant for EU countries.

c) the own-account production of housing services by owner-occupiers;

d) domestic and personal services produced by employing paid domestic staff;

e) volunteer activities that result in goods, e.g. the construction of a dwelling, church or other building are to be recorded as production. Volunteer activities that do not result in goods, e.g. caretaking and cleaning without payment, are excluded.

All such activities are included even if they are illegal or not-registered at tax, social security, statistical and other public authorities.

Production excludes the production of domestic and personal services that are produced and consumed within the same household (with the exception of employing paid domestic staff and the services of owner-occupied dwellings). Cases in point are:

a) cleaning, decoration and maintenance of the dwelling as far as these activities are also common for tenants;

b) cleaning, servicing and repair of household durables;

c) preparation and serving of meals;

d) care, training and instruction of children;

e) care of sick, infirm or old people;

f) transportation of members of the household or their goods.

Public non-financial corporation

Non-financial corporations and quasi-corporations which are subject to control by government units and whose principal activity is market-oriented production of goods and services. An enterprise is under public control, if, for example, government units own at least 50 per cent of the share or co-operative capital either directly or indirectly, or they have the right to determine corporate policy and to appoint the directors.

Purchasers' price

The purchaser’s price is the price the purchaser actually pays for the products; including any taxes less subsidies on the products (but excluding deductible taxes like VAT on the products); including any transport charges paid separately by the purchaser to take delivery at the required time and place; after deductions for any discounts for bulk or off-peak-purchases from standard prices or charges; excluding interest or services charges added under credit arrangements; excluding any extra charges incurred as a result of failing to pay within the period stated at the time the purchases were made.

Purchasing Power Standard

Purchasing Power Standard (‘PPS’) means the artificial common reference currency unit used in the European Union to express the volume of economic aggregates for the purpose of spatial comparisons in such a way that price level differences between the Member States are eliminated.

Quasi-corporation

The corporation sector includes private and public quasi-corporations which are market producers principally engaged in the production of goods and non-financial services.

The term 'non-financial quasi-corporations' denotes all bodies without independent legal status which are market producers principally engaged in the production of goods and non-financial services and meet the conditions qualifying them as quasi-corporations.

Quasi-corporations must keep a complete set of accounts and are operated as if they were corporations. The de facto relationship to their owner is that of a corporation to their shareholders. Thus non-financial quasi-corporations owned by households, government units or non-profit institutions are grouped with non-financial corporations in the non-financial corporations sector.

Reduction of fixed capital

Reduction of fixed capital means that a capital good is removed from the capital stock after having reached the end of its life cycle. The reduction is calculated as the difference between investments and changes in the gross capital stock.

Reference year

A reference year is a year which is used particularly for the presentation of a time series of constant price data. In a series of index numbers it is the year that takes the value 100. The series' internal weights do not need to be based on the reference year. The base year is the year that is used in constructing the series.

Reinvested earnings on direct foreign investment

Reinvested earnings on direct foreign investment (D.43) are equal to:

the operating surplus of the direct foreign investment enterprise

+ any property incomes or current transfers receivable

- any property incomes or current transfers payable, including actual remittances to foreign direct investors and any current taxes payable on the income, wealth, etc., of the direct foreign investment enterprise.

A direct foreign investment enterprise is an incorporated or unincorporated enterprise in which an investor resident in another economy owns 10 per cent or more of the ordinary shares or voting power (for an incorporated enterprise) or the equivalent (for an unincorporated enterprise). Direct foreign investment enterprises comprise those entities that are identified as subsidiaries (investor owns more than 50 per cent), associates (investor owns 50 per cent or less) and branches (wholly or jointly owned unincorporated enterprises), either directly or indirectly owned by the investor. Consequently, ‘direct foreign investment enterprises’ is a broader concept than ‘foreign controlled corporations’.

Actual distributions may be made out of the entrepreneurial income of direct foreign investment enterprises in the form of dividends or withdrawals of income from quasi-corporations.

In addition, retained earnings are treated as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity of the enterprise and then reinvested by them.



Reinvested earnings on direct foreign investment can be either positive or negative.

Time of recording: Reinvested earnings on direct foreign investment are recorded when they are earned.

In the system of accounts, reinvested earnings on direct foreign investment appear:

a) among uses and resources in the allocation of primary income account of the sectors;

b) among uses and resources in the external account of primary incomes and current transfers.

Research and development activity

Research and experimental development (R&D) comprise creative and systematic work undertaken in order to increase the stock of knowledge – including knowledge of humankind, culture and society – and to devise new applications of available knowledge.

The five criteria for identifying R&D:

To be aimed at new findings (novel)

The aim of the R&D is to produce new knowledge and novelties. Mere application of the existing knowledge in development of new solutions, products or procedures is not R&D activity.

To be based on original, not obvious, concepts and hypotheses (creative)

Characteristic to R&D activity is creativity, setting and testing of new hypothesis and concepts. Routine activities in the development of products, processes or other procedures in not R&D activity.

To be uncertain about the final outcome (uncertain)

R&D involves uncertainty regarding outcomes and costs.

To be planned and budgeted (systematic)

R&D is conducted in a planned way, with records kept of both the process followed and the outcome. The purpose of the R&D project and the sources of funding for the R&D performed should be identified. R&D is often organized as a project, but it can also be goal-oriented activity of a person or a group.

To lead to results that could be possibly reproduced (transferable and/or reproducible)

An R&D project should result in the potential for the transfer of the new knowledge which also can be reproduced.

Distribution by type of R&D

Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without any particular application or use in view.

Applied research is original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific, practical aim or objective.

Experimental development is systematic work, drawing on knowledge gained from research and practical experience and producing additional knowledge, which is directed to producing new products or processes or to improving existing products or processes.

Resident unit

The total economy is defined in terms of resident units. A unit is said to be a resident unit of a country when it has a centre of economic interest on the economic territory of that country – that is, when it engages for an extended period (one year or more) in economic activities on this territory. The institutional sectors are groups of resident institutional units.

Resident units engage in transactions with non-resident units (that is, units which are residents in other economies). These transactions are the external transactions of the economy and are grouped in the rest of the world account. So, in the accounting structure of the national accounts, the rest of the world plays a role similar to that of an institutional sector, although non-resident units are included only in so far as they are engaged in transactions with resident institutional units. Consequently, as far as coding of classifications is concerned, a specific item for the rest of the world is included at the end of the classification of sectors.

Notional resident units, treated in the system as institutional units, are defined as:

a) those parts of non-resident units which have a centre of economic interest (that is in most cases which engage in economic transactions for a year or more or which carry out a construction activity for a period of less than a year if the output constitutes gross fixed capital formation) on the economic territory of the country;

b) non-resident units in their capacity as owners of land or buildings on the economic territory of the country, but only in respect of transactions affecting such land or buildings.

Saving

Saving is the balancing item in the use of income accounts. It is the positive or negative amount resulting from current transactions which establishes the link with accumulation. If saving is positive, non-spent income is used for the acquisition of assets or for paying off liabilities. If saving is negative, certain assets are liquidated or certain liabilities increase.

Social transfers in kind

Social transfers in kind consist of individual goods and services provided as transfers in kind to individual households by government units and non-profit institutions serving households (NPISHs), whether purchased on the market or produced as non-market output by government units or NPISHs.

Stocks

The system records two basic kinds of information: flows and stocks. Flows refer to actions and effects of events that take place within a given period of time, while stocks refer to positions at a point of time.

Stocks are holdings of assets and liabilities at a point in time. Stocks are recorded at the beginning and end of each accounting period. The accounts that show stocks are called balance sheets. Stocks are also recorded for population and employment. However, these stocks are recorded as mean values over the accounting period.

Stocks are recorded for all assets within the system’s boundaries; that is, for financial assets and liabilities and for non-financial assets, both produced and non-produced. However, the coverage is limited to those assets that are used in economic activity and that are subject to ownership rights. Thus, stocks are not recorded for assets such as human capital and natural resources that are not owned.

Within its boundaries, the system is exhaustive in respect of both flows and stocks. This implies that all changes in stocks can be fully explained by recorded flows.

Subsidies

Subsidies (D.3) are current unrequited payments which general government or the institutions of the European Union make to resident producers, with the objective of influencing their levels of production, their prices or the remuneration of the factors of production. Other non-market producers can receive other subsidies on production only if those payments depend on general regulations applicable to market and non-market producers as well.

Subsidies granted by the Institutions of the European Union cover only current transfers made directly by them to resident producer units.

Subsidies are classified into:

a) subsidies on products (D.31)

(1) import subsidies (D.311)

(2) other subsidies on products (D.319)

b) other subsidies on production (D.39).

Taxes on production and imports

Taxes on production and imports (D.2) consist of compulsory, unrequited payments, in cash or in kind which are levied by general government, or by the Institutions of the European Union, in respect of the production and importation of goods and services, the employment of labour, the ownership or use of land, buildings or other assets used in production. These taxes are payable whether or not profits are made.

Taxes on production and imports are divided into:

a) taxes on products (D.21)

(1) value added type taxes (VAT) (D.211)

(2) taxes and duties on imports excluding VAT (D.212)

– import duties (D.2121)

– taxes on imports excluding VAT and import duties (D.2122)

(3) taxes on products, except VAT and import taxes (D.214)

b) other taxes on production (D.29).

Time of recording

The system of national accounts records the flows on accrual basis. In other words, when economic value is created, changed or destroyed or when claims and obligations are born or they are changed or annulled.

Output is recorded when it has been produced and not when the buyer has paid for it, and sales of assets are recorded when the assets are released and not when the corresponding payment is made. Interest is recorded to the accounting period from which it is generated, regardless of whether it is actually paid in that period or not. Accrual-based recording is applied to all flows, both those in money and those that are not measured in money, both within a unit and between units.

All flows should be recorded at the same time for all institutional units involved and in all concerned accounts. In practice, institutional units do not always use the same accounting rules. And even if they do, there may be differences in the actual recording due to practical reasons like delays in communication. Therefore, the performers of the economic transactions in question may record the transactions at different times. These deviations must be corrected with adjustments.

Total economy

The units which constitute the Finnish economy are those units that have a centre of economic interest on the economic territory of Finland. Economic units are categorized as non-financial corporations (S.11), financial corporations (S.12), general government (S.13), households (S.14) and non-profit institutions serving households (S.15).

Trade margins

The output of wholesale and retail services is measured by the trade margins realised on the goods they purchase for resale. A trade margin is the difference between the actual or imputed price realised on a good purchased for resale and the price that would have to be paid by the distributor to replace the good at the time it is sold or otherwise disposed of.

Trading gain

The trading gain is the same as the real gain from foreign trade.

The real gross domestic income can be derived by adding the so-called trading gain to volume figures on gross domestic product. The trading gain B or, as the case may be, loss B is defined as the current balance of exports less imports, deflated by a price index, less the difference between the deflated value of exports and the deflated value of imports. In the circumstances in which there is uncertainty about the choice of deflator an average of the import and the export price indices is likely to provide a suitable deflator.

Transaction

A transaction is an economic flow that is an interaction between institutional units by mutual agreement or an action within an institutional unit that it is useful to treat as a transaction, often because the unit is operating in two different capacities. It is convenient to divide transactions into four main groups:

a) transactions in products - which describe the origin (domestic output or imports) and use (intermediate consumption, final consumption, capital formation or exports) of products ;

b) distributive transactions - which describe how value added generated by production is distributed to labour, capital and government, and the redistribution of income and wealth (taxes on income and wealth and other transfers);

c) financial transactions - which describe the net acquisition of financial assets or the net incurrence of liabilities for each type of financial instrument. Such transactions often occur as counterparts of non-financial transactions, but they may also occur as transactions involving only financial instruments;

d) transactions not included in the three groups above:

consumption of fixed capital and acquisitions less disposals of non-produced non financial assets.

Most transactions are monetary transactions, where the units involved make or receive payments, or incur liabilities or receive assets denominated in units of currency. Transactions that do not involve the exchange of cash, or assets or liabilities denominated in units of currency, are non-monetary transactions.

Intra-unit transactions are normally non-monetary transactions. Non-monetary transactions involving more than one institutional unit occur among transactions in products (barter of products), distributive transactions (remuneration in kind, transfers in kind, etc.) and other transactions (barter of non-produced non-financial assets).

All transactions are recorded in monetary terms. The values to be recorded for non-monetary transactions must therefore be measured indirectly or otherwise estimated.

Valuation

With the exception of some variables concerning population and labour, the system shows all flows and stocks in monetary terms. The system does not attempt to determine the utility of flows and stocks. Instead, flows and stocks are measured according to their exchange value, i.e. the value at which flows and stocks are in fact, or could be, exchanged for cash. Market prices are thus the basic reference for valuation in the national accounts.

In the case of monetary transactions and cash holdings and liabilities, the values required are directly available. In most other cases, the preferred method of valuation is by reference to market prices for analogous goods, services or assets. This method is used for e.g. barter and the services of owner-occupied dwellings. When no market prices for analogous products are available, for instance in the case of non-market services produced by government, valuation should be made according to production costs. If neither of these two methods are feasible, flows and stocks may be valued at the discounted present value of expected future returns. However, due to the great uncertainty involved, this last method is only recommended as a last resort.

Stocks should be valued at current prices at the time to which the balance sheet relates, not at the time of production or acquisition of the goods or assets that form the stocks. It is sometimes necessary to value stocks at their estimated written-down current acquisition values or production costs.

Value added

Value added (gross) refers to the value generated by any unit engaged in a production activity. In market production it is calculated by deducting from the unit's output the intermediates (goods and services) used in the production process and in non-market production by adding up compensation of employees, consumption of fixed capital and possible taxes on production and imports.

Withdrawals from income of quasi-corporations

Withdrawals from the income of quasi-corporations consist of the amounts which entrepreneurs actually withdraw for their own use from the profits earned by the quasi-corporations which belong to them.