13 importance of social accounting
importance of social accounting in the economy
Social accounting helps in understanding the structure of an economy and relative importance of the different sector and flows. It is a key to the evaluation and formulation of government policies both in the present and future. The uses of social accounting are as follows:
1. in classifying transaction:
Economic activity in a country involves innumerable transactions relating to buying and selling, paying and receiving income. Exporting and importing, paying taxes, etc. the great merit of social accounting lies in classifying and summarizing these different kinds of transactions properly, and deriving from these such aggregate as national income, national expenditure, saving, investment, consumption expenditure, production expenditure, government spending, foreign payments and receipts, etc.
2. In understanding economic structure:
Social accounting helps us to understand the structure of the body economic. It tells us not only the national income but also about the size of production and consumption, the level of taxation and saving and the dependence of the economy upon foreign trade.
3. in understanding different sectors and flows:
Social accounts throw light on the relative importance of the different sectors and flows in the economy. They tell us whether the contribution of the production sector, the consumption sector, the investment sector or the rest of the world sector is greater than the other sectors in the national accounts.
4. in clarifying relation between concepts:
Social accounts help in clarifying the relationship between such related concepts as net national product at factor cost and gross national product at market prices.
5. In guiding the investigator:
Social accounts are a guide for the economic investigator by indicating the type of data which might be collected for analyzing the behavior of the economy. Such data might relate to gross national product, government expenditure on goods and services, private consumption expenditure, gross private investment, etc.
6. in explaining trends in income distribution:
Variation in the components, of social accounts is guide to the trends in income distribution within the economy.
7. in explaining movements in gross national product:
Movement in gross national product valued at constant prices and expressed per head of population indicates changes in the standard of living. Similarly, changes in the level of productivity can be measured by relating gross national product valued at constant prices to working population per head.
8. Provide a picture of the working of the economy:
Social accounts provide an ex post picture of the working of the economy. “They can also used as a framework for drawing up an ex ante forecast of the likely outcome of the economy in the future. Thus, social accounts ensure consistency of forecasts, both internally and in relation to other known facts”.
9. in explaining interdependence of different sectors of the economy:
Social accounts also provide an insight into the interdependence of the different sectors of the economy. This can be known from a study of the matrix of social accounts.
10. in estimating effects of government policies:
The importance of social account lies in estimating the effects of government policies on different sectors of the economy and in formulating new policies in keeping with changes in economic conditions, as revealed by national income accounts. Their main function is to help the government judge, guide or control economic conditions and to formulate economic policies which aim at maximization of national income, keeping employment at a high level, reducing inequalities of income and wealth, preventing undue rise in prices, conserving foreign exchange, etc.
11. helpful in big business organization:
Social accounts are also used by big business houses for assessing their performance and to improve their prospects on the basis of the statistical information about the various sectors of the economy.
12. useful for international purposes:
Social accounting is also useful for international purpose. A comparative study of the social accounts of different countries of the world helps in the categorization of countries into underdeveloped, less developed and developed. It is on the basis of social accounts that the various agencies of the United Nations make provisions for aid to poor countries of the world.
13. Basis of economic models:
Social accounts from the basis for economic models for the purpose of analyzing the behavior of the economy as a whole, of economic forecasting and illuminating problems of economic policy
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