" 3.26 The accounting system underlying the international accounts derives from road bookkeeping principles. To understand the accounting system for international accounts, three bookkeeping principles can be distinguished: (a) vertical double-entry bookkeeping (also known in business accounting as simply double-entry bookkeeping); (b) horizontal double-entry bookkeeping; and (c) quadruple-entry bookkeeping.
Vertical double-entry bookkeeping—corresponding entries
3.27 The main characteristic of vertical double-entry bookkeeping is that each transaction leads to at least two corresponding entries, traditionally referred to as a credit entry and a debit entry, in the books of the transactor. The international accounts for an economy are to be compiled on a vertical double-entry bookkeeping basis from the perspective of the residents of that economy.
Because each transaction is either an exchange or a transfer, it requires two entries. This principle ensures that the total of all credit entries and that of all debit entries for all transactions are equal, thus permitting a check on consistency of accounts for a single unit. Reclassifications also lead to debit and credit entries. Other flows have their corresponding entries directly in
changes in net worth. As a result, vertical double-entry bookkeeping ensures the fundamental identity of a unit’s balance sheet, that is, the total value of assets equals the total value of liabilities plus net worth. The total value of the assets owned by an entity minus the total value of liabilities provides net worth. In the international accounts, net international investment position provides a measure of net financial claims with nonresidents plus gold bullion
held as monetary gold. These terms are discussed in paragraphs 7.1–7.2.
Horizontal double-entry bookkeeping—counterpart entries
3.28 The concept of horizontal double-entry bookkeeping is useful for compiling accounts that reflect the mutual economic relationships between different institutional units in a consistent way. It means that if unit A provides something to unit B, the accounts of both A and B show the transaction for the same amount: as a payment in A’s account and as a receipt in B’s account. Horizontal double-entry bookkeeping ensures the consistency of recording for each transaction category by counterparties. For example, at the worldwide level,
dividends payable by all economies should
Quadruple-entry bookkeeping
3.29 The simultaneous application of both the vertical and horizontal double-entry bookkeeping results in a quadruple-entry bookkeeping, which is the accounting system underlying the recording of transactions in the national accounts and international accounts. Additionally, definitions, classifications, and accounting principles in the international accounts are derived from the viewpoint of conceptual symmetry as well as symmetric reporting by partner economies. The quadruple-entry system deals in a coherent way with multiple transactors or groups of transactors, each of which practices vertical double-entry bookkeeping. A single transaction between two counterparties thus
gives rise to four entries. In contrast to business bookkeeping, international accounts deal with interactions among a multitude of units in parallel and thus require special care from a consistency point of view. As a liability of one unit is mirrored in a financial asset of another unit, for instance, they should be identically valued, allocated in time, and classified to avoid inconsistencies
in aggregating balance sheets of units into regional or global totals. The same is also true for all transactions and other flows that affect balance sheets of two counterparties. The quadruple approach to transactions in the international accounts is needed for bilateral comparisons and global integrated data.
Para 3.26 - 3.29, Chapter 3, Page 34, BPM6
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