Transactions in Financial Assets

and Liabilities

9

Th is chapter describes transactions in fi nancial assets
and liabilities and their classifi cation.

Introduction.

9.1 Chapter  7 describes the balance sheet and the
assets and liabilities recorded on it. As an integrated
framework, GFS also include the fl ows necessary to ex-
plain all changes between the balance sheet at the be-
ginning of the period and the balance sheet at the end
of the reporting period. As described in Chapter  3,
there are two types of fl ows—transactions and other
economic fl ows—both of which can aff ect stock posi-
tions of assets and liabilities. Th is chapter describes
the transactions that aff ect stock positions of fi nancial
assets and liabilities, and Chapter  10 describes other
economic fl ows.

9.2 Th e accounting identity given in paragraph 8.2
for nonfi nancial assets also holds for fi nancial assets
and liabilities.^1 Th e identity states that:

Th e value of a category of fi nancial assets (liabili-

ties) on the balance sheet at the beginning of the

reporting period

plus
Th e total value of that category of fi nancial assets
(liabilities) acquired (incurred) in transactions
during the reporting period

minus
Th e total value of that category of fi nancial assets
(liabilities) disposed of (extinguished) in transac-
tions during the reporting period

plus
Th e net value of other economic fl ows that aff ect
that category of fi nancial assets (liabilities)

(^1) For ease of expression, assets will oft en be used as a reference to
both assets and liabilities.
equals
Th e value of the category of fi nancial assets (li-
abilities) on the balance sheet at the end of the re-
porting period.
Th is identity requires that transactions, other eco-
nomic fl ows, and stock positions be recorded consis-
tently with regard to classifi cation, time of recording,
and valuation. Th e accounting rules governing these
factors are described in Chapter 3.
9.3 Transactions can change stock positions of fi -
nancial assets or liabilities in diff erent ways and all
must be accounted for. Th e more important types of
transactions follow:

• Transactions involving revenue, expense, the
  transfer of economic ownership of a good or
  nonfi nancial asset, or the provision of a service
  or labor almost always entail a counterpart entry
  in transactions in fi nancial assets and liabilities
  for means of payment or claims on future means
  of payment. Even many transactions in kind,
  such as barter transactions and remuneration
  in kind, could conceptually lead to counterpart
  transactions in fi nancial assets (other accounts
  receivable) and/or liabilities (other accounts pay-
  able) when the timing of the exchange does not
  coincide. Th e sale of a good, service, or asset may
  have as its counterpart a change in currency or
  transferable deposit. Alternatively, the counter-
  part may be refl ected as another type of fi nancial
  asset or liability, such as other accounts receiv-
  able or payable.


• New fi nancial claims are oft en created by trans-
  actions in which a creditor advances funds to
  a debtor. Th e creditor then acquires a fi nancial
  asset and the debtor incurs a liability.


• Some transactions in fi nancial assets and liabili-
  ties are simply exchanges of fi nancial instruments.