Accounting identity
Also called: Identity · Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 12, Ch 2 "National Income Accounting"; Class 12, Ch 4 "Determination of Income and Employment"
Meaning
An accounting identity is a relation that is true for all values of its variables, simply because of how the terms are defined. It is written with the sign ≡. An equation (=) holds only for particular values. Identities are why the product, income and expenditure methods of measuring GDP always give the same total.
Example
2 + 2 ≡ 4 is always true. So is change in inventories ≡ production − sales. But 2 × x = 4 is true only when x = 2, so it is an equation, and you cannot write 2x ≡ 4.
Don't confuse with
- Equation: an equation holds only for certain values of the unknown. An identity holds always.