What are the methods of presenting national income accounting?

The national income accounting is otherwise called “Social accounting”. The national income accounting is a method to present statistically the inter-relationship between the different sectors of the economy for a thorough understanding of the economic conditions of the entire economy. There are three methods of presenting national income accounting. They are

(a) Double entry method

(b) Matrix method

(c) Circular flow method.

(a) Double entry method: –

National income accounting is presented on the double entry basis like private accounts. Under double entry systems every transaction involves two aspects such as receipts and payments. The person who is involved in the transaction of goods and services acts like a creditor and debtor. Thus every transaction is entered both on credit and debit sides of the account.

(b) Matrix Method: –

Matrix Method is one of the important methods of national income accounting. A matrix is defined as a rectangular array of elements arranged in rows and columns. Receipts are shown in rows while payments are shown in columns. Thus matrix presents figures of aggregate economic activities of a country in an organised and tabular form. The first step in the presentation and preparation of such accounts is to classify transactions into two groups namely ‘firms’ and ‘households’. Firms are organizations using the services of factors of production for producing goods and services. Households consisting of persons, wage earners, salary earners, business men and property owners, receive payment for services rendered to the firms.

A transaction matrix is used for social accounts in which, each row contains payments to other sectors. Every single entry is both in a particular row and in a particular column. For balancing social accounts a row total must equal its corresponding column- total. From the matrix it is clear that the two sectors are independent. The most important advantage of using the matrix form of social accounting is that it is both brief and clear and gives at a glance the entire picture of the economic activities.

(c) Circular flow Method:-

The circular flow method rests on the assumption that different sectors of an economy are interrelated. The income and expenditure of an economy flow in a circular manner continuously through time. The various components of national income and expenditure such as saving, investment, taxation, Govt, expenditure, exports, imports, etc. are in the form of currents and gross currents in such a manner that national income equal, national expenditure.

Primarily there are two sectors in an economy households and business. The household sectors own all the factors of production. This sector receives income by selling the services of these factors to the business sector. The business sector consists of producers. Who produce and sell for the household consumers. The home hold sector buys the products of the business sector. Under circular flow payments go round in a circular manner from the business sector to the house hold sector and from household sector to the business sector.