Classification of the expenditure and the mode of it’s financing in terms of economic categories (expenditure on wages and salaries, receipts from market borrowings and the like), is called economic classification of the budget.
This classification enables us to gather a variety of economic information relating to generation of savings, investment, consumption, creation of financial assets and liabilities, etc.
previews.123rf.com
ADVERTISEMENTS:
Economic classification of the budget has six accounts covering the following:
Account 1:
Transactions in commodities and services, and transfers; Current Account of Government Administration.
Account 2:
ADVERTISEMENTS:
Transactions in commodities and services and transfers; Current Account of Departmental Commercial Undertakings.
Account 3:
Transactions in commodities and services and transfers; Capital Account of Government Administration and Departmental Commercial Undertakings (Combined).
Account 4:
ADVERTISEMENTS:
Changes in financial assets; Capital Account of Government Administration and Departmental Commercial Undertakings. Account 5: Changes in financial liabilities; Capital Account of Government
Administration and Departmental Commercial Undertakings. Account 6 : Cash and Reconciliation Account of Government Administration and Departmental Commercial Undertakings.
This classification is designed in such a way that it can be linked with a system of national income and expenditure accounts, depicting the activities associated with the generation of national income and capital formation.
It, therefore, provides a breakdown of government expenditure into consumption and capital formation, and the impact which the government expenditure has upon the rest of the economy.
Furthermore, this classification also provides information concerning financial assets and liabilities, and is very helpful in assessing the changes in the composition and ownership of financial assets as also the borrowing and lending transactions of the government.