Economic Flows, Stock Positions, and Accounting Rules 53
continuously over the whole period the contract lasts
or the asset is available for use.
3.91 Inventories may be materials and supplies
held as input for producing goods and services, work-
in-progress, or fi nished goods held for resale or dis-
tribution. Additions to inventories are recorded when
products are purchased, produced, or otherwise ac-
quired. Withdrawals from inventories are recorded
when products are sold, used up in production, or oth-
erwise relinquished. Additions to work-in-progress
inventories are recorded continuously as work pro-
ceeds. When production is completed, the goods val-
ued at costs accumulated to that point are transferred
to inventories of fi nished goods.
3.92 Use of goods and services is recorded when
the good or service enters the process of production,
as distinct from the time it was acquired. For goods,
this time may be quite diff erent from the time they
were acquired. In the meantime, they are classifi ed as
inventories.
Time of recording transactions in fi nancial assets and liabilities
3.93 Transactions in many types of fi nancial assets
and liabilities, such as debt securities, loans, currency,
and deposits, are recorded when economic ownership
changes (see paragraphs 9.13–9.16). Th is date may be
specifi ed according to a contract to ensure matching
entries in the books of both parties. If no precise date
is fi xed, the date on which the creditor receives pay-
ment, or some other fi nancial claim, is the determin-
ing factor. For example, loan drawings are entered in
the accounts when actual disbursements are made
and fi nancial claims are established, which is not nec-
essarily when an agreement is signed. On practical
grounds, public sector liabilities may have to take ac-
count of the time of recording from the viewpoint of
the public sector unit.
3.94 In some cases, the parties to a transaction
may perceive ownership to change on diff erent dates
because they acquire the documents evidencing the
transaction at diff erent times. Th is variation usually is
caused by the process of clearing, or the time checks
are in the mail. Th e amounts involved in such a “fl oat”
may be substantial in the case of transferable depos-
its and other accounts receivable or payable. If there
is disagreement on a transaction between two units,
the date on which the transaction is fully completed,
which is the day the creditor regards change of owner-
ship to have taken place, is the date of record; this date
could be when the creditor receives payment or some
other fi nancial claim.
3.95 Some fi nancial claims or liabilities, in partic-
ular the various types of other accounts payable and
receivable, such as trade credit and advances, general
accounts payable, and wages payable, are the result
of a nonfi nancial transaction and are not otherwise
evidenced. In these cases, the fi nancial claim is cre-
ated when the counterpart transaction (such as the
purchase of a good on credit or provision of labor)
occurs.
3.96 For securities, the transaction date (i.e., the
time of the change in ownership of the securities) may
precede the settlement date (i.e., the time of the deliv-
ery of the securities). Both parties should record the
transactions at the time ownership changes, not when
the underlying fi nancial asset is delivered. Any signif-
icant diff erence between transaction and settlement
dates gives rise to other accounts payable or receivable.
In practice, when the delay between the transaction
and settlement is short, the time of settlement may be
considered an acceptable proxy.
3.97 According to the accrual basis of recording,
repayments of debts are recorded when they are extin-
guished (such as when they are paid, or rescheduled,
or forgiven by the creditor). When arrears occur, no
transactions should be imputed, but the arrears should
continue to be included in the same instrument until
the liability is extinguished. If the contract provided
for a change in the characteristics of a fi nancial in-
strument when it goes into arrears, this change should
be recorded as a reclassifi cation in the other changes
in volume of the fi nancial assets and liabilities ac-
count. Th e reclassifi cation applies to situations where
the original contract remains, but the terms within it
change (e.g., interest rates, repayment periods, etc.).^18
If a new contract is negotiated or the nature of the
instrument changes from one instrument category
to another (e.g., from bonds to equity), transactions
should be recorded to refl ect the redemption of the
old instrument and to create a new instrument.(^18) Charging a penalty interest rate on arrears that was stipulated in
the original contract is not in itself a reason to reclassify the debt.