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National Accounting

National Accounting. Ch 2: The basic concepts of the National Accounting. Ch 2: The basic concepts of the National Accounting. (3)It includes all commodities produced, therefore, it does not exclude the amount of commodities consumed by the producer of that commodities.

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National Accounting

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  1. National Accounting Dr. Amr Nazieh

  2. Ch 2: The basic concepts of the National Accounting Dr. Amr Nazieh

  3. Ch 2: The basic concepts of the National Accounting • (3)It includes all commodities produced, therefore, it does not exclude the amount of commodities consumed by the producer of that commodities. Dr. Amr Nazieh

  4. Ch 2: The basic concepts of the National Accounting • 2- Fiscal National production : • This will indicates only the tangible commodities and national production then, includes wages and profit, resulted from those products, Other wages resulted from doing services will not be considered within the national production. Dr. Amr Nazieh

  5. Ch 2: The basic concepts of the National Accounting • 3- Marketable production : • National production according to this approach represents the total value of all goods and services traded of goods, either tangible or intangible. • The only consideration here is the existence of a market price for the commodity. Dr. Amr Nazieh

  6. Ch 2: The basic concepts of the National Accounting • 3- Marketable production : • Therefore, commodities or services, which do not traded in the market, put may be consumed directly by the some producer, should not be considered within the national production. Dr. Amr Nazieh

  7. Ch 2: The basic concepts of the National Accounting • Other concepts related to the National production: • (1) Net National Production Net national production = Gross national production - Depreciation Dr. Amr Nazieh

  8. Ch 2: The basic concepts of the National Accounting • (2) Local (Domestic) Production • It represents the value of final commodities and services produced inside the country, without regard to the factors of production either, those factors are of local persons of or foreigners living inside. Dr. Amr Nazieh

  9. Ch 2: The basic concepts of the National Accounting • (2) Local (Domestic) Production • The main differences between national production and domestic production lies in the point of the production by individuals living abroad. Dr. Amr Nazieh

  10. Ch 2: The basic concepts of the National Accounting • Then: • Domestic production = Gross production by individuals living inside the country. • National production = domestic production + the production of Egyptian people living abroad. Dr. Amr Nazieh

  11. Ch 2: The basic concepts of the National Accounting • Then: National Production = local production + the production of people living abroad (-) Production by foreigners living temporarily in Egypt. Dr. Amr Nazieh

  12. Ch 2: The basic concepts of the National Accounting • (3) Net National Production at Factor Cost • Here, we should differentiate between the evaluation of the net national production according to the market prices or alternatively according to the factor costs. Dr. Amr Nazieh

  13. Ch 2: The basic concepts of the National Accounting • (3) Net National Production at Factor Cost • National production according to the factor Costs = National production at market price (-) indirect taxes (+) production subsidiary ( gifts or donations). Dr. Amr Nazieh

  14. Ch 2: The basic concepts of the National Accounting • (3) Net National Production at Factor Cost • There is another way for calculating the national production at the factor costs by adding together the different elements of the national income, which consists of wages, interests, rent and profit Dr. Amr Nazieh

  15. Ch 1: The nature of the national accounting Methods of measuring National Product • National production can be measured according to one of the following methods as follows: Dr. Amr Nazieh

  16. Ch 2: The basic concepts of the National Accounting • (1) The Final production method • According to this method, national production equals to the value of the final production within a specific period. • Final production represents the value of goods and services, do not used as intermediate products, but they will be used for final consumption. Dr. Amr Nazieh

  17. Ch 2: The basic concepts of the National Accounting • (1) The Final production method • If there is a part of production of the current period was stored and used next period as an intermediate production, then the value of this intermediate production should be excluded from the value of the final production of that coming period. Dr. Amr Nazieh

  18. Ch 2: The basic concepts of the National Accounting • (1) The Final production method • Example: • An economy consists of three production entities A1, A2 and A3. • The production of A1 will be sold to A2 and the production of A2 will be sold to A3 and then the, production of A3 will be sold to the final consumers • The following data were excluded from the records of the previous three entities: Dr. Amr Nazieh

  19. Ch 2: The basic concepts of the National Accounting Dr. Amr Nazieh

  20. Ch 2: The basic concepts of the National Accounting • Required : Determine the value of the national production according to the method of the final production Dr. Amr Nazieh

  21. Ch 2: The basic concepts of the National Accounting • Solution : • National production = The value of the final production + The inventory change • National production = 8000 +(450 + 100) – (50 + 150 ) = £E 8350 Dr. Amr Nazieh

  22. Ch 2: The basic concepts of the National Accounting • According to the above solution, final production will represent the production of entity (A3) while the change in the inventory will represent the difference between the ending inventory and the beginning inventory. Dr. Amr Nazieh

  23. Ch 2: The basic concepts of the National Accounting • (2) The Value add method • According to this method, the value of the national production will be measured in terms of the contribution of each production entity in the national production. • The contribution of each entity will represent the difference between the entity's final production and to commodities or intermediate commodities used in production. Dr. Amr Nazieh

  24. Ch 2: The basic concepts of the National Accounting • (2) The Value add method • Then : • The value add = value of production — ( all production factors + the reduction in the inventory). Dr. Amr Nazieh

  25. Ch 2: The basic concepts of the National Accounting • (2) The Value add method • Example: • Suppose in the previous example that the measurement of the national production is according to the value add method: Dr. Amr Nazieh

  26. Ch 2: The basic concepts of the National Accounting • Solution : • Entity A1: • Factors of production = Purchases - Changes in inventory • = Zero • Value added = 2000 – Zero = £E 2000 Dr. Amr Nazieh

  27. Ch 2: The basic concepts of the National Accounting • Solution : • Entity A2: • Factors of production = Purchases - Changes in inventory • = 2000-(100-50) =£E 1950 • Value added = 4000 – 1950 = £E 2050 Dr. Amr Nazieh

  28. Ch 2: The basic concepts of the National Accounting • Solution : • Entity A3: • Factors of production = Purchases - Changes in inventory • = 4000-(450-150) =£E 3700 • Value added = 8000 – 3700 = £E 4300 • Total national production = £E 8350. Dr. Amr Nazieh

  29. Ch 2: The basic concepts of the National Accounting • (2) The Value add method • According to the previous method, we see that the second method is much better than the previous one as it indicates to both individual national production of each entity as well as the total national production. Dr. Amr Nazieh

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