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Net output is an accounting concept used in national accounts such as the United Nations System of National Accounts (UNSNA) and the NIPAs, and sometimes in corporate or government accounts. The concept was originally invented to measure the total net addition to a country's stock of wealth created by production during an accounting interval. The concept of net output is basically "gross revenue from production less the value of goods and services used up in that production". The idea is that if one deducts intermediate expenditures from the annual flow of income generated by production, one obtains a measure of the net new value in the new products created.

Definition

In national accounts, net output is equivalent to the gross value added during an accounting period when producing enterprises use inputs (labor and capital assets) to produce outputs. Gross value added is called "gross" because it includes[clarification needed] depreciation charges or consumption of fixed capital. The calculation is importantly influenced by the definition of expenditures and incomes included within the scope of "production" - some incomes and expenditures are included as "factor income" or "factor expenditure" directly related to production, other are not.

The calculation involves an accounting procedure of "grossing and netting" the revenues which enterprises obtain from their outputs of goods and services, in order to establish what the real value of those outputs is.

This procedure must consistently identify and distinguish between costs and revenues, and between materials or services used up, fixed assets and new outputs, according to a standard valuation. In national accounts, this is especially important because the inputs of one enterprise are the outputs of another, and vice versa; lacking a consistent procedure, double counting would result. In turn, the "grossing and netting" procedure assumes a value theory and a definition of the coverage of production. Once we have that, we can aggregate a multitude of prices to obtain a price for the total value of net output.

Components of net output

The value of an aggregate net output is normally understood to be equal to the sum of

In calculating net output for national accounts, government subsidies received by producing enterprises are normally subtracted from indirect tax levies paid by them during the same accounting period.

Net output and GDP

The total net output of resident producers in a national economy is equal to Gross Domestic Product or GDP. Included in this total is the productive activity of government agencies and certain income-generating activities of households.

Input-output analysis

In input-output analysis, disaggregated data on gross and net outputs of different economic sectors and sub-sectors is used to study the transactions between them. Thus, for example, a sector purchases inputs from several other sectors and sells outputs to several other sectors. By identifying the quantities of inputs and outputs involved, we can estimate what the effect will be of fluctuations in business activity within one sector, or group of sectors on the economy as a whole.

Criticism

As mentioned, the calculation of net output requires a value theory, a way of grossing and netting, and techniques for aggregating the prices of transaction volumes in a consistent way. Obviously, there are many different ways of going about this, but normally a legal framework limits the number of variations possible or permitted (business accounts have to be audited and so on, to guarantee a fair statement of business operations within the law of the land). Nevertheless, the procedure for establishing net output can be contested.

See also