6 Important National Income Accounting Concepts

What is national income accounting? National income accounting is refer to the government bookkeeping system that measures a country’s economic activity offering insight into how an economy is performing. Such a system will include total revenues by domestic corporations, wages paid, and sales and income tax data for companies.

National Income is the total amount of income accruing to a country from economic activities in a fixed period of time (i.e., One Year). It includes payments made to all resources either in the form of wages, interest, rent, and profits.

There are basic concepts often used in national income accounting. The important national accounting concepts  include, NI, GNP and NNP, other important national accounting concepts include personal income and disposable income.

6 Important National Income Accounting Concepts

  1. National Income
  2. Gross Domestic Product
  3. Gross national Product
  4. Net national Product
  5. Personal Income
  6. Disposable Income

1. National Income

This is the total amount paid to factors of production – land, labour, capital and entrepreneur. It is derived from GNP by subtracting from the latter indirect business taxes and depreciation.

2. Gross Domestic Product (GDP)

This is the monetary value of all goods and services produced in an economy, irrespective of the nationalities of those who produced them, over a given period of time, usually a year.

3. Gross National Product (GNP)

This is the monetary value of goods and services produced by the nationals of a country whether resident within or outside the country. It is simply GDP plus income from abroad (i.e. income earned by nationals of the country resident abroad minus income of foreigners resident within the country).

4. Net National Product (NNP)

This is GNP minus depreciation. It is the value of national product after making allowances for the depreciation of the capital used to produce the output.

5. Personal Income

This is the total amount an average individual receives as income. It differs from national income in two ways. First, some people who have a claim on income do not actually receive it. For example, although all the profit of a firm belongs to the owners, not all of this is eventually paid out to them. Second, some people receive income that is not obtained in exchange for services rendered.

To reconcile personal income and national income, you subtract corporate profits from national income, and add dividends to the result. Then you must deduct contributions for social insurance and add government and business transfer payments.

6. Disposable Income

This is simply the take home pay of workers. It means the actual income which can be spent on consumption of individuals and families. The whole of the personal cannot be spent on consumption, because it is the incomes that accrue before direct taxes have actually being paid.

Therefore, in order to obtain the disposable income, direct taxes are deducted from personal income. Thus Disposable income = personal income – direct taxes.

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