Different Types of Concept

The distinction between national and domestic concepts, which was dealt with in chapter 1, is by no means the only distinction that is made in national accounting between different types of concept. Another and very important distinction is the one between gross and net concepts. This distinction applies to the flows of product or factor income (Y), capital formation (J) and saving (S). For all three of these the difference consists of what is called capital consumption, which is the amount that has to be charged off against the proceeds of production in computing the amount of value created by the various factors of production in order to allow for the cost involved in the gradual using up of fixed assets in production. This charge in respect of capital consumption is on a par with similar charges made in respect of the using up of non-fixed assets in production. The difference between fixed assets, such as buildings and machines, and non-fixed assets, such as raw materials, is in the main, that the former are multiple-use assets, whereas the latter are single-use assets in the hands of producers. In practice the dividing line between the two types of asset is drawn slightly differently. Thus, for instance, it proves expedient to exclude from the concept of fixed assets all non-tangible assets, such as goodwill, and all those multiple-use assets the expenditure on which is either small or recurrent in character, e.g. hand tools, motor tyres, office desk equipment and normal repair and maintenance. Those particular multiple-use assets are treated as non-fixed assets and accordingly are charged off against production proceeds immediately at the time the expenditure on them is incurred.