Accounting National income is also being measured by the social accounting method. Under this method, the transactions among various sectors such as firms, households, government, etc., are recorded and their interrelationships traced. The social accounting framework is useful for economists as well as policy makers, - - National Income because it represents the major economic flows and statistical relationships among various sectors of the economic system. It becomes possible to forecast the trends of economy more accurately.
. . Social Accounting and Sectors Under this method, the economy is divided into several sectors. A sector is a group of individuals or institutions having common interrelated economic transactions.
The economy is divided into the following sectors (i) Firms, (ii) Households, (iii) Government, (iv) Rest of the world and (v) Capital sector. “Firms” undertake productive activities. Thus, they are all organizations which employ the factors of production to produce goods and services. “Households” are consuming entities and represent the factors of production, who receive payment for services rendered by them to firms.
Households consume the goods and services that are produced by the firms. Thus, firms make payment to households for their services. Households spend money incomes they received on the goods and services produced by the firms. This is a circular flow of money between these two groups.
“The Government sector” refers to the economic transactions of public bodies at all levels, centre, state and local. In their work concerning social accounting, Edey and Peacock have defined government as a collective ‘person’ that purchases goods and services from firms. These purchases may be financed through taxation, public borrowings, or any other fiscal means. The main function of the government is to provide social goods like defence, public health, education, etc.
This means satisfying the collective wants of society. However, public enterprises like Post Offices and railways are separated from the Government sector and included as “Firms”. “Rest of the world sector” relates to international economic transactions of the country. It contains income, export and import transactions, external loan transactions and allied overseas investment incomes and