1. Goods and services account
THE CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION

2. Overview Transactions in products Measurement of production and output
Market and non-market activities
Final consumption
Gross capital formation
Exports and imports

3. Main categories of transactions in products (P)
P.1 Output;
P.2 Intermediate consumption;
P.3 Final consumption;
P.5g Gross capital formation;
P.6 Export of goods and services;
P.7 Import of goods and services.

4. Goods and services account
Shows the balance of supply and demand
Both for single products, product groups, and the whole economy
Domestic output is valued at basic prices
To match demand at purchaser prices, net product taxes value must be added

5. RESOURCES
USES
P.1 Output
P.2 Intermediate consumption
D.21 Taxes on Products
P.3 Final consumption
D.31 Subsidies on products
P.5g Gross Capital Formation
P.7 Imports
Note that the usual convention of having resources on the right, uses on the left of the account is reversed as we are emphasising the flow of goods and services rather than the corresponding monetary payments
P.6 Exports

6. Goods and services
What is a “good”?
What is a “service”

7. What is a good?
Goods are tangible produced objects, over which ownership can be exercised, which can be exchanged in the economy.
Goods last beyond the moment of production.
Goods can be described and measured through their physical characteristics

8. What is a service?
A service is an action (a productive activity) carried out for the benefit of others, which
alters the mental or physical state of the recipient or their possessions; or
facilitates the business or private activities of the recipient.

9. Unlike a good, A service is not tangible A service is delivered and consumed in the act of production – it does not last beyond the action (although the effects do) In order to record a service in an account, both the character of the service must be known, and the terms on which it is provided

10. Goods / services – special cases
Intangible assets – e.g. recipe for Coca Cola
Not tangible, but has more in common with goods than services – ownership, lasts beyond moment of “production”
Margin services – e.g retailing, banking
Collective services – Police force

11. Basics of Goods and Services account
The accounting balance of the Goods and Services account results from the match of selling and purchase value for each exchange
See the next diagram for a simple picture of the flow of goods and services in the economy

12. Goods and Services diagram March 2017.pdf

13. Goods and Services Account
For each product
1. Sales = purchases, so
2. Business sales + Import sales
equals
Business purchases + Final purchases (C + GFCF + X)

14. 3. Output = Business sales + change in WIP and FG
4. Int. cons. = Business purchases less change in M&F
Rearranging 3 and 4
Business sales = Output – change in WIP and FG
Business purchases = Int. cons. + changes in M&F

15. Output – change in WIP and FG + Imports Equals Int. cons
Output – change in WIP and FG + Imports Equals Int. cons. + changes in M&F + C + GFCF + X Output + Imports = Int cons + C + GFC + X The accounting balance shown in the G&S, once we move the price basis of output to purchasers’ prices by adding net product taxes

16. Production account P.2 Intermediate consumption
USES
RESOURCES
P.2 Intermediate consumption
P.1 Output (basic prices)
VALUE ADDED (BASIC PRICES)

17. Measurement of production
Definition of production (ESA ):
Production is an activity carried by an institutional unit that uses inputs of labour, capital and goods and services to produce outputs of goods and services.
Production does not cover natural processes which have no human involvement or direction, such as the unmanaged growth of fish stocks in international waters, but production does include fish farming.

18. Production includes (ESA 2101 3.08):
the production of all individual or collective goods and services that are supplied to units other than their producers;
(b) the own-account production of all goods that are retained by their producers for their own final consumption or gross fixed capital formation.

19. Production includes (ESA 2010 3.08):
Own-account production of goods by households: (1) own-account construction of dwellings; (2) the production and storage of agricultural products; (3) the processing of agricultural products; (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.

20. Measurement of production
Production includes (ESA ):
(c) the own-account production of dwelling services by owner/occupiers;
(d) domestic and personal services produced by employing paid domestic staff;
(e) volunteer activities that result in goods. Examples of such activities are the construction of a dwelling, church or other building. Volunteer activities that do not result in goods – e.g. care-taking and cleaning without payment – are excluded.

21. Production definition (ESA 2010 3.08):
Production is not affected by the activity being illegal or not-registered at tax, social security, statistical and other public authorities.
Own-account production of goods by households is recorded when this type of production is significant, in relation to the total supply of that good in a country.

22. Production excludes (ESA 2010 3.09):
production of domestic and personal services consumed within the same household:
cleaning, decoration and maintenance;
(b) cleaning, servicing and repair of household
durables;
(c) preparation and serving of meals;

23. Market and non-market activities
Two different types of producers may be distinguished:
Market producers
Non-market producers
Different principles of valuation are applied for the two categories.

24. Output
Output (P.1) is the total value of products created during the accounting period: (a) market output (P.11); (b) output produced for own final use (P.12); (c) non-market output (P.13).

25. Market and non-market activities
Valuation of output (ESA , 3.43)
All output is to be valued at basic prices, but specific
conventions hold for:
(a) the valuation of non-market output;
(b) the valuation of total output of a non-market producer (local KAU);
(c) the valuation of the total output of an institutional unit of which a local KAU is a non-market producer.

26. Measurement of production - housing
Rented dwellings: output equals value of the rent
Owner-occupied dwellings:
- The owner-occupier is considered a producer of housing services.
- Output is equal to the rent paid for a comparable rented house
- Costs of repairs and decoration are
- > intermediate consumption or
- > final consumption
- major improvements > capital form

27. Measurement of production – retail and wholesale trade
Production = trade margin
which is equal to
sales of goods purchased for resale
less purchases of goods for resale
Plus change in inventories of goods for resale including normal losses due to wastage, theft, etc.

28. Market and non-market activities
Valuation of output
Output for own final use is valued at the basic prices of similar products sold on the market.
If no similar products can be identified, then second best approach is to value according to sum of costs

29. Non-market output
The total output of a non-market producer is valued at the total costs of production, i.e. the sum of:
intermediate consumption;
(b) compensation of employees;
(c) consumption of fixed capital;
(d) other taxes on production less other subsidies on production.

30. Intermediate consumption (P.2)
Goods and services consumed as inputs by a process of production(ESA )
Products used for intermediate consumption are valued at purchaser’s prices

31. Intermediate consumption (P.2)
Not fixed assets such as:
- small tools
- intangible assets
- military weapons
Delineation with value added
- wages in kind
- reimbursements

32. Production account of a market producer

33. Production account of a market producer

34. Production account of a non-market producer
Uses
Resources
Intermediate consumption
Market output
Output for own final use
Non-market output
Compensation of employees
Taxes on production
Subsidies on production
Consumption of fixed capital
Output

35. Final consumption (P.3, P.4)
Two concepts of final consumption are used:
(a) final consumption expenditure (P.3);
(b) actual final consumption (P.4).
Final consumption expenditure is expenditure on goods and services used by households, NPISHs and government to satisfy individual and collective needs.
Actual final consumption refers to acquisition of consumption goods and services. The difference between these concepts lies in the treatment of certain goods and services financed by the government or NPISHs but supplied to households as social transfers in kind.

36. Final consumption (P.3, P.4)
Time of recording and valuation (ESA pp):
Expenditure on a good is recorded at the time of change of ownership; expenditure on a service is recorded when the delivery of the service is completed.
Expenditure on goods acquired under a hire purchase or similar credit agreement, and also under a financial lease, is recorded at the time the goods are delivered even if there is no change of ownership at this point.

37. Final consumption (P.3, P.4)
Time of recording and valuation (ESA ):
Own-account consumption is recorded when the output retained for own final consumption is produced.
The final consumption expenditure of households is recorded at purchasers' prices.
This is the price the purchaser actually pays for the products at the time of the purchase.

38. Gross capital formation (P.5)
Gross capital formation consists of:
(a) gross fixed capital formation (P.51g):
(1) consumption of fixed capital (P.51c);
(2) net fixed capital formation (P.51n);
(b) changes in inventories (P.52);
(c) acquisitions minus disposals of valuables (P.53).

39. Gross fixed capital formation(P.51g)
Acquisition less disposals of fixed assets
Fixed assets: used repeatedly or continuously in the production process for more than one year
Special attention:
Delineation with intermediate consumption

40. Gross fixed capital formation(P.51g)
Acquisistion less diposals of fixed assets
Included:
tangible
intangible
Excluded:
financial assets
exceptional losses

41. Gross fixed capital formation(P.51g)
Delineation with intermediate consumption
purchase of small tools for production purposes;
small repairs;
the acquisition of fixed assets to be used under an operational leasing contract

42. Consumption of fixed capital
Consumption of fixed capital (ESA ) is defined as the decline in value of fixed assets owned, as a result of normal wear and tear and obsolescence.
The estimate of decline in value includes a provision for losses of fixed assets as a result of accidental damage which can be insured against.
Consumption of fixed capital covers anticipated terminal costs, such as the decommissioning costs of nuclear power stations or oil rigs or the cleanup costs of landfill sites.

43. Exports and imports
Exports of goods and services consist of transactions in goods and services (sales, barter, and gifts) from residents to non-residents (ESA ).
Imports of goods and services consist of transactions in goods and services (purchases, barter, and gifts) from non-residents to residents (ESA ).
Imports and exports of goods and services are distinguished into:
(a) intra-EU deliveries;
(b) imports and exports outside the EU.

44. Exports and imports
Exports and imports of goods and services do not include:
(a) establishment trade;
(b) primary income flows to or from the rest of the world, such as compensation of employees, interest and revenues from direct investment;
(c) the cross-border sale or purchase of financial assets or non-produced assets, such as land.

45. Thank you for your attention
CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION