NATIONAL INCOME

ACCOUNTING
MS . E V ANGELINE P . D AY AO
FACULT Y, COL L EG E OF BU S I N ESS, E N T REPRENEU RSHIP & ACCOU N TA NCY
The Economys
Income and Expenditure

When judging whether the economy is

doing well or poorly, it is natural to look at
the total income that everyone in the
economy is earning.
For an economy as a whole, income must equal
expenditure because:
Every transaction has a buyer and a seller.
Every dollar of spending by some buyer is a
dollar of income for some seller.
Gross Domestic Product
Gross domestic product (GDP) is a measure of
the income and expenditures of an economy.
It is the total market value of all final goods and
services produced within a country in a given
period of time.
The Measurement of GDP
GDP is the market value of all final goods and
services produced within a country in a given
period of time
The Measurement of GDP
Output is valued at market prices.
It records only the value of final goods, not
intermediate goods (the value is counted only once).
It includes both tangible goods (food, clothing, cars)
and intangible services (haircuts, housecleaning, doctor
visits).
The Measurement of GDP
It includes goods and services currently produced, not
transactions involving goods produced in the past.
It measures the value of production within the
geographic confines of a country.
The Measurement of GDP
Itmeasures the value of production that takes place
within a specific interval of time, usually a year or a
quarter (three months).
What Is Counted in GDP?
GDP includes all items produced in the economy
and sold legally in markets.
What Is Not Counted in GDP?
GDP excludes most items that are produced and
consumed at home and that never enter the
marketplace.
It excludes items produced and sold illicitly, such as
illegal drugs.
Other Measures of Income
Gross National Product (GNP)
Net National Product (NNP)

National Income

Personal Income

Disposable Personal Income

Gross National Product
Gross national product (GNP) is the total income
earned by a nations permanent residents (called
nationals).
It differs from GDP by including income that our
citizens earn abroad and excluding income that
foreigners earn here.
Net National Product (NNP)
Net National Product (NNP) is the total income of
the nations residents (GNP) minus losses from
depreciation.
Depreciation is the wear and tear on the economys
stock of equipment and structures.
National Income
National Income is the total income earned by a
nations residents in the production of goods and
services.
It differs from NNP by excluding indirect business taxes
(such as sales taxes) and including business subsidies.
Personal Income
Personal income is the income that households and
noncorporate businesses receive.
Unlike national income, it excludes retained earnings,
which is income that corporations have earned but have
not paid out to their owners.
In addition, it includes households interest income and
government transfers.
Disposable Personal Income
Disposable personal income is the income that
household and noncorporate businesses have left after
satisfying all their obligations to the government.
It equals personal income minus personal taxes and
certain nontax payments.
APPROACHES IN MEASURING GDP
There are 3 ways to measure GDP:
The Expenditure Approach
The Income Approach
The Industrial origin Approach
THE EXPENDITURE APPROACH
THE EXPENDITURE APPROACH
It measures GDP by adding all the spending for
final goods and services during a period of one
year.

GDP = C + I + G + ( X M )
PERSONAL CONSUMPTION EXPENDITURE (C)
Consumption is spending by households on goods and
services.
Goods includes household spending on durable goods such
as automobiles, appliances and any other goods that last
for more than 1 year; non-durable goods, such as food and
medicines and other goods that do not last for a longer
period of time; services include such intangible items as
haircuts, massage, medical care, banking and finance and
any other intangibles that likewise satisfy human needs
and wants.
GROSS PRIVATE DOMESTIC INVESTMENT (I)
Investment is the purchase of goods that will
be used in the future to produce more goods
and services. It is some of the purchases of
capital equipments (such as machineries),
inventories and structures (such as office
buildings and factories).
Nevertheless, investment in structures
includes expenditures on new housing.
Generally, the purchase of a new house
is one form of household spending
categorized as investment rather than
consumption.
GOVERNMENT CONSUMPTION EXPENDITURE
AND GROSS INVESTMENT (G)
This account includes the value of goods and services that
government at all levels (national, provincial, city, municipal levels)
purchases measured by their costs.
It includes salaries of government workers and spending on public
works.
It is important to note that this excludes transfer payments
because they do not represent newly produced goods and services.
Instead, transfer payments are paid to those entitled to social
security benefits, veterans benefits and other welfare benefits
provided by the government.
NET EXPORTS (X-M)
Exports (X) are expenditures by foreigners for Philippine
goods produced domestically while Imports (M) are the
dollar amount of Philippines purchases of goods produced
abroad by foreign companies.
In other words, net exports equals the purchases of
domestically produced goods by foreigners (exports) minus
the domestic purchases of foreign goods (imports)
THE INCOME APPROACH
THE INCOME APPROACH
It measures GDP by adding all the incomes earned
by households in exchange for the factors of
production during a period of time.

GDP = COMPENSATION OF EMPLOYEES + RENTS + PROFITS +

NET INTEREST + INDIRECT TAXES + DEPRECIATION
COMPENSATION OF EMPLOYEES
Employees compensation is the largest of the national
income accounts. It comprises mainly of income earned
from wages, salaries and certain supplements paid by
firms and government to suppliers of labor.
Since labor services play such an important role in the
production of goods and services, it is not surprising that
employee compensation represents the largest share of
the GDP income pie
RENTAL INCOME OF PERSONS
Another source of income is from rent and royalties
received by property owners who permit others to use
their assets during a period of time.
Hence, this account includes the rental fees on houses,
apartments and condominiums rented out by landlords as
well as the offices rented out by building owners to
businesses.
It also includes the fees on lands leased out by land
owners for the use of their property.
PROFITS
It includes those earned by self-employed proprietorships and partnerships
who simultaneously manage their businesses and at the same time pay
themselves for labor services rendered to their firms.
Also included in this account are the corporate profits. It includes all incomes
earned by stockholders of corporations regardless of whether stockholders
receive them in cash or in any form.
Three components of corporate profits
Dividends
Undistributed corporate profits ( retained earnings for expanding plant and
equipments)
Corporate income tax
NET INTEREST
Households both receive and pay interest. Persons
who make loans to businesses earn interest income.
Households also receive income from savings and
time deposit accounts, and other certificates of
deposits.
Households borrow money and pay interest on for
example, housing loans, car loans, credit cards and
personal loans.
INDIRECT BUSINESS TAXES
Taxes that are levied as a percentage of the prices of goods and
services sold and therefore become part of the revenue received by
the firm.
These taxes include the value added tax (VAT), excise taxes on
certain goods and custom duties.
These are taxes imposed on the goods and services produced by
firms which are passed on to the final consumers through higher
prices.
Firms collect indirect taxes and remit these funds to the
government.
DEPRECIATION
Consumption of fixed capital an estimate of the depreciation of
capital.
Depreciation is an allowance for the portion of capital worn out
producing GDP.
Overtime, capital goods such as buildings, machines and
equipments wear out and become less valuable or obsolete.
Depreciation is therefore a portion of GDP that is not available for
income payments.
 THE INDUSTRIAL ORIGIN OR
GROSS VALUE ADDED APPROACH
THE INDUSTRIAL ORIGIN OR GROSS
VALUE ADDED APPROACH
Under this approach the economy is divided into three sectors
composed of industries:
Agriculture, fishery and forestry sector
Industry sector
Service sector
The Gross Value Added is the domestic product of goods and
services produced by industries within the country. The total
output does not include the value of imported goods and services.
COMPONENTS OF THE 3 INDUSTRY SECTOR
The agriculture , fishery and forestry sectors are composed of the
agriculture industry sub sector, fishery subsector and forestry
subsector.
The components of the industry sector are mining and quarrying;
manufacturing; construction; and electricity, gas and water
subsector.
The service sector is composed of the transportation,
communication and storage; trade; finance; office; dwellings and
real estate subsectors; private services and government services.
thanks !