48 Government Finance Statistics Manual 2014
is, the total value of assets equals the total value of li-
abilities plus net worth.
3.55 A debit entry is an increase in an asset, a
decrease in a liability, or a decrease in net worth. A
credit entry is a decrease in an asset, an increase in a
liability, or an increase in net worth. Revenue entries
result in an increase in assets or decrease in liabilities,
which ultimately increase net worth; therefore, rev-
enue entries are recorded as credits. Conversely, ex-
pense entries result in a decrease in assets or increase
in liabilities, which ultimately decrease net worth;
therefore, expense entries are recorded as debits.
Other economic fl ows can increase or decrease assets
and liabilities, thereby directly impacting net worth.
In the case of the reclassifi cation of assets or liabilities,
a change occurs in the stock positions of two catego-
ries of assets or liabilities with no impact on net worth
(e.g., an increase in one category of asset is paired
with a decrease in another category of asset).
3.56 A balance sheet is a statement of the values of
the stock positions of assets owned and of the liabili-
ties owed by an institutional unit or group of units,
drawn up in respect of a particular point in time. Th e
fundamental identity of the balance sheet and of ac-
counting in general is that the total value of the assets
always equals the total value of the liabilities plus net
worth. Use of the double-entry recording ensures that
this identity is maintained. Th ere are several possible
combinations of debits and credits aff ecting assets, lia-
bilities, and net worth. For example, the purchase of a
service by a general government unit with payment to
be made in 30 days would be recorded on an accrual
basis as an expense (debit) and an increase in the lia-
bility, other accounts payable (credit). Th us, net worth,
through the expense, decreases by the same amount
that liabilities increase, and assets are not affected.
The subsequent payment at the end of the 30 days
would be recorded on an accrual basis as a decrease in
currency and deposits (credit) and a decrease in other
accounts payable (debit). In this case, both assets and
liabilities decrease by the same amount and net worth
is unaff ected.Time of Recording Flows
3.57 Once a fl ow has been identifi ed, the time at
which it occurred must be determined so that the re-
sults of all fl ows within a given reporting period can
be reported. Although this section is concerned withthe time assigned to fl ows, the integrated nature of
the GFS framework means that the stock positions re-
corded on the balance sheet are also infl uenced by the
timing of fl ows.
3.58 One of the problems in determining the tim-
ing of transactions is the frequent existence of a long
period between the initiation of an action and its fi nal
completion. For instance, many purchases of goods
commence with the signing of a contract between
a seller and a buyer, followed by the initiation and
completion of production of the item ordered, ship-
ment from the seller’s location, arrival at the buyer’s
location, preparation and mailing the invoice, receipt
of the invoice, approval of payment, the beginning of
interest accruing on a late payment or the expiration
of a discount for prompt payment, signing a check
for payment, mailing of the check by the buyer, re-
ceipt of the check by the seller, deposit of the check in
the seller’s bank, and fi nally the check is paid by the
buyer’s bank. Even then, the transaction may not be
complete as there may be rights of return or warranty
claims. Each of these distinct moments is to some ex-
tent economically relevant and may result in multiple
transactions being recorded in GFS, but only one time
can be attributed to each transaction.3.59 Similarly, in analyzing government expense
and acquisition of nonfi nancial assets, one can dis-
tinguish the day that a budget is voted upon by the
legislature, the day on which the ministry of fi nance
authorized a department to pay out specifi ed funds,
the day a particular commitment is entered into by
the departments, the day deliveries take place, and fi -
nally, the day payment orders are issued and checks
are paid. With regard to taxes, for example, important
moments are the day or the period in which the liabil-
ity arises, the moment the tax liability is defi nitively
assessed, the day that it becomes due for payment
without penalty, and the day the tax is paid or refunds
are made.
3.60 In summary, when using the accrual basis of
recording, transactions are recorded when economic
ownership changes hands for goods, nonproduced
nonfi nancial assets and fi nancial assets and liabilities,
when services are provided, and for distributive trans-
actions when the related claims arise. On the other
hand, when using the cash basis of recording, fl ows
are recorded when cash is received and disbursed.