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Accrual Basis of Accounting

Advance, Preliminary, and Final Estimates

Benchmark Statistics

The accrual basis of accounting is a system of accounting in which revenues and expenditures are recognized immediately as they are earned. This means recording receipts and expenditures for a service when the service is rendered and for goods when they are delivered, rather than when payment is made or received.

An alternative method of accounting is on a cash basis. In this approach, income is recorded when received, and expenditures are recorded when actually paid.

Following the initial publication of many government statistics, more complete data become available, thereby necessitating a revision in the original figures. Therefore, when estimates are made, they are classified as either advance, preliminary, or final.

The sequence of revision is probably easiest to see in the case of the monthly estimates of sales of retail stores. For any given month, a succession of estimates of the level and change in retail sales becomes available over a period of several months, beginning with the weekly sales figures-not adjusted for seasonal variation-which are based on subsample data. The weekly figures are released the following Thursday, and as the month progresses these provide some basis for a very rough estimate for the month as a whole. The first actual seasonally adjusted monthly estimate, however, is the Census Bureau's "advance" estimate which is published about ten days following the close of the month. This monthly estimate is derived from the weekly figures collected from the subsample described above. Approximately a month later a "preliminary" estimate of monthly retail sales is published, based on data from the Census Bureau's full reporting sample of retail stores. This preliminary estimate is then subject to further revision-usually very slight-and after further checking and correction, a "final" estimate becomes available about two months after the "advance" estimate is released.

Benchmark statistics are comprehensive data (compiled at infrequent intervals) which are used as a basis for developing and adjusting interim estimates made from sample information. Many of the monthly and quarterly estimates of economic data published by the Bureau of the Census and the Bureau of Economic Analysis make use of the various decennial, quinquennial, and annual censuses and surveys for benchmark purposes.

Census or other benchmark data are used both in the design and interpretation of subsequent samples and in the revision of interim estimates that may have developed systematic errors between census or survey periods.

An example of this process may be seen in the Census Bureau's series on Manufacturers' shipments, inventories, and new orders. These series are collected and estimated from monthly sample reports for approximately 55 detailed industry

Benchmark Statistics (Cont'd)

Constant Dollar Estimates

Depletion Allowance

Depreciation Charge

Diffusion Index

categories. The monthly estimates are periodically adjustedusually in July or August of each year-to reflect developments in the Annual Survey of Manufactures, a more comprehensive survey-the benchmark statistics-of all manufacturing activity in the economy.

Constant dollar estimates represent an effort to remove the effects of price changes from statistical series reported in dollar terms. In general, constant dollar series are derived by dividing current dollar estimates by appropriate price indexes. The result is a series as it would presumably exist if prices were the same throughout as in the base year-in other words, as if the dollar had constant purchasing power. Any changes in such a series would reflect only changes in the real (physical) volume of output.

See also Implicit price deflator, p. 76.

A depletion allowance is a tax credit for the reduction in the value of exhaustible natural resources such as minerals and timber as they are extracted, permanently reducing the supply for future years. A tax allowance is extended to the owners of these exhaustible resources. The magnitude of the depletion allowance for tax purposes is set by law and varies according to the particular resource. Unlike the depreciation charge, the depletion allowance is not used in the National Income and Product Accounts and is not included in capital consumption allowances.

See also Corporate profits before taxes, p. 11, and Corporate profits after taxes, p. 12.

Depreciation charge is an estimate of the reduction in the value of fixed assets brought about through use, gradual obsolescence, or the effects of the elements (decay or corrosion).

To reflect national output more accurately, estimates for depreciation of fixed assets owned by corporate, noncorporate, nonprofit institutions, and homeowners are made. These charges are then subtracted from GNP as capital consumption allowances to yield Net National Product. For nonfarm businesses the valuation of these depreciation charges reflects the type of accounting practices pursued under Internal Revenue Service regulations.

See also Capital consumption allowances, p. 14

A diffusion index is a statistical measure of the overall behavior of a group of economic time series. It indicates the percentage of series expanding in the selected group. If onehalf of the series in the group are rising over a given time span, the diffusion index value equals 50. The limits of a diffusion index are 0 and 100. One example is the diffusion index that measures the percentage of 22 manufacturing industries in the Wholesale Price Index showing higher prices. As an analytical measure, the diffusion index is helpful in indicating the spread of economic movements from one industry to another and from one economic process to another. Cyclical changes in a diffusion index tend to lead those of the corresponding aggregate.

Econometric Model

Economic Time Series

Final Sales

Foreign Exchange Markets

Full Employment Balance

An econometric model is a set of related equations used to analyze economic data through mathematical and statistical techniques. Such models are devised in order to depict the essential quantitative relationships that determine the behavior of output, income, employment, and prices. Econometric models are used for forecasting, estimating the likely quantitative impact of alternative assumptions, including those pertaining to Government policies, and for testing various propositions about the way the economy works.

The Bureau of Economic Analysis has developed a quarterly econometric model of the U.S. economy. This model consists of 60 equations (excluding identities) and is designed to be used for structural analysis and forecasting.

An economic time series is a set of quantitative data collected over regular time intervals (e.g., weekly, monthly, quarterly, annually) which measures some aspect of economic activity. The data may measure a broad aggregate such as GNP, or a narrow segment such as sales of tractors or the price of copper.

Final sales are the portion of current GNP sold to ultimate users. Included are consumption expenditures of the private (line 24 in Table A, p. 14 ) and government (line 38) sectors of the economy plus fixed investment (line 29) and net exports (line 35). Not included is the change in business inventories (line 34), since inventories are not yet in the hands of the ultimate consumers.

Final sales are derived by subtracting the change in business inventories from gross national product in current dollars. See also Table A, p. 7.

Foreign exchange markets are those in which the monies of different countries are exchanged. Rates of exchange are the prices of currencies quoted in terms of other currencies. As with other organized markets, transactions are either "spot" (for prompt settlement) or "future" (contracted for settlement at a stated future date).

The financial instruments exchanged are all current, that is, money in the form of notes and coin, or bank deposits denominated in different currencies, or near-money in such forms as bank drafts and bills of exchange.

Foreign exchange holdings-sometimes referred to as "foreign exchange"-are holdings of current or liquid claims denominated in the currency of another country.

The full-employment balance is an estimate of the amount at which Federal revenues would equal Federal expenditures if the economy were operating at current price levels. Changes in the full-employment balance from period to period are generally considered to be more significant indicators than the absolute level for indicating the extent of fiscal restraint or stimulus.

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