Wednesday, August 26, 2009

Social Accounting and its Usefulness

The Social Accounting is a term which is applied to the description of the various types of economic activities that are taking place in the community in a certain institutional frame work. In Social Accounting we are concerned with statistical classification of the economic activity so that we are able to understand easily and clearly the operation on the economy as a whole. In the words of Stone and Murray “The term social accounts is used in a general sense to denote an organized arrangement of all transactions, actual or imputed in an economic system. In such a system distinctions are drawn between (i) Forums of economic activity, namely production, consumption and accumulation of wealth (ii) Sectors or institutional division of the economy and (iii) types of transactions, such as sales and purchases of goods and services, gifts, taxes and other current transfers etc.

Here is another version about the filed of social accounting. “The field of studies-summed up by the words “social accounting” embraces however not only the classification of economic activity but also the application of the information thus assembled to the investigation of the operation of the economic system. Social Accounting is thus concerned with the analytical as well as statistical elements of the study of national accounts.

In social accounting a transactor is supposed to keep a set of three accounts in which transactions are entered

(a) In the first account, incomes and outgoings relating to a productive activity of the transactor are brought together. The difference between the two indicates the profit or the gain.

b) The second account seeks to show how this profit and any other income that accrues to the transactor are allocated to different uses. The excess of income over rutlay is the measure of savings.

(c) The third account shows how this saving and any other capital funds are used to finance the capital. Expenditure or to give loans to other transactors. These accounts show the assets and liabilities of the person concerned at the beginning and at the end of whole, the transactors are numerous, they are grouped into sectors. In the sector, accounts of a same type are consolidated.

Social accounting or preparation of social accounts has assumed great importance in modern times. This is so because modern theory is being increasingly applied for the solution of economics is to be fruitful, knowledge of social accounts is absolutely essential. In the absence of a clear picture of the working of economy, an economist is seriously handicapped in giving practical advice to the government or to businessman. It is only with the help of social accounting that one can clearly trace the effects of changes in one section of the economy on the other section. Now we can briefly explain the main purposes of social accounting.

(i) One purpose of the preparation of social accounting is to give reader a clear picture of the whole economy. As in social accounting we find classified accounts of the various transactions entered into various sectors of the economy. From these transactions we can have fairly clear view of the working of the entire economic system.

(ii) We all are interested in the health, efficiency and stability of the economy since, a healthy and efficient economy results into health and efficiency of individual business. We all are familiar with the objectives placed before our Five-Year plans. They all relate to the economy as a whole. We want economic growth with stability or we want to build up self reliant and self-generating economy. How far we are able to achieve these objectives can be very well found out from the description of various transactions and activities given in social accounting. Thus if we want to promote efficiency and stability of our economy, preparation of social accounts is must.

(iii) Measurement of economic welfare is another purpose of preparation of social accounts. We have mentioned above our Five-Year Plans. At the end of each plan we naturally like to know how far the masses have benefited from the plan. In other words, we want to know to what extent economic welfare of masses has been promoted. From social accounting we can know at a glance to what extent the masses are better off at the time when planning started.

(iv) There is another important use which social accounting serves. From study of social accounts we are in position to find out how the different sectors of the economy are inter-related to each other. We can for instance find out to what extent the industrial sector depends on the agricultural sector and vice versa we can also know to what extent the growth of our export sector is conditioned by our industrial and agricultural growth to the economists and to persons engaged in economic planning these inter-relationships are of very great use.

(v) Social accounting serves a very practical purpose for statesman, the government administrator and the politician. It is on the basis of social accounting that intelligent and effective government policies in fiscal, monetary and other economic spheres can be formulated and executed. In the absence of social accounts, such policies can well be miss-leading and may result in economic disasters. The national resources are limited and it will be criminal to fritter them away. It is therefore very necessary that every care is taken in the formulation of national policies. Only social accounts can give us proper guidance in this connection.

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