For example, acquisition of a financial asset increases one financial asset at the expense of another (cash)
2.101. The framework for presentation of information about flows and stocks is designed to show the balance between opening stocks, flows during the accounting period and closing stocks, and to enable the derivation of key balances of importance in fiscal analysis. Thus, the framework requires that, for each category of stocks, the values at the beginning of an accounting period, plus the value of transactions and other economic flows during the accounting period, are equal to the values of the stocks at the end of the accounting period. The key analytical balances that can be derived from the framework are the net operating balance , net lending(+)/borrowing(-) , net worth and change in net worth . Change in net worth can be broken down into change in net worth arising from transactions, revaluations, and other changes in the volume of assets. Table 2.1 below shows the broad structure of the framework and the relationships between items contained therein. Explanation of the items and relationships is provided in the following paragraphs.
2.103. In the table cells, analytical balances are shown in bold. The balances that embrace all public sector activities are shown in the bottom row of the table . They are net worth ( defined as asset s minus liabilities, shares and other contributed capital) and change in net worth ( defined as the closing value of net worth minus the opening value of net worth) . As illustrated in the table, change in net worth can be broken down into a change in net worth due to transactions , change in net worth due to revaluations , and change in net worth due to other changes in the volume of assets .
2.104. The operating statement includes two balancing items. The first of these is the previously mentioned net operating balance , which is derived as total revenues less total expenses. Revenues and expenses are, respectively, inflows and outflows of economic value arising from operational transactions, and usually result in a change to net worth. As noted, the net operating balance is equal to the change in net worth due to transactions. This is because all changes to net worth arising from transactions are recorded as either revenues or expenses. All other transaction-induced changes to assets, liabilities and equity cancel out and do not affect net worth.
Certain exchange transactions, such as acquisition of fixed assets for cash, do not change net worth but simply change the composition of assets, liabilities or equity (such transactions cannot be revenues or expenses)
2.105. The second analytical balance in the operating statement, GFS net lending(+)/borrowing(-) , is derived as the net operating balance less net acquisition of non-financial assets. GFS net lending(+)/borrowing(-) is also equal to the net change in financial assets, liabilities and equity arising from transactions . Using other relationships shown in Table 2.1, this equality can be demonstrated arithmetically as follows:
The relationship is useful inasmuch that GFS net lending(+)/borrowing(-) measures the public sector’s financing requirement which, using the relationship, can be related to transaction-induced changes to public sector financial assets, liabilities and equity. Users are thereby able to see how the financing requirement was financed.
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2.106. Revenues are defined in the system as transactions that increase net worth. Proceeds of sales of non-financial assets other than inventories are excluded from revenues because receipt of the proceeds is offset by the value of the asset relinquished. Any profit or loss on the sale is treated as a revaluation rather than a transaction and any change to net worth arising from the sale is attributed to the revaluation and not to the transaction. Proceeds from sales of goods from inventories are included as revenues because such sales are recorded on a gross basis (i.e. the cost of the goods sold is treated separately as an expense and not offset against or netted off the related revenue). Thus, even though such sales in the general government sector may be made at cost or less than cost, the sale proceeds are treated as a revenue and the withdrawal of the goods from inventories is treated as an expense. Revenues exclude all receipts (e.g. proceeds of borrowing, repayments of loans) resulting from transactions in financial assets, liabilities and equity because such transactions always create offsetting changes of equal value to other financial assets, liabilities or equity and there is no change in net worth. For example, revenues exclude contributions of capital by the owners of public corporations because such contributions create an equal financial claim on the corporation that is deducted from its assets in the derivation of its net worth.