Net output
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.
Definition
In national accounts, net output is equivalent to the gross value added during an accounting period when enterprises use inputs (labor and capital assets) to produce outputs. Gross value added is called "gross" because it includes depreciation charges Consumption of fixed capital.
Derivation
Net output is obtained by subtracting the value of intermediate goods and services from the Gross Output of enterprises.
This 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. 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.
Components of net output
The value of net output is normally understood to be equal to the sum of
- labour costs (or Compensation of employees),
- depreciation (or consumption of fixed capital,
- income tax and indirect tax imposts on production
- profit (or operating surplus.
In calculating net output for national accounts, government subsidies received by producing enterprises are normally subtracted from 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.
Usually the term "net output" is used to refer to the contribution which a particular economic sector (for example, agriculture, manufacturing, business services etc.) makes to total value added or GDP during a quarter or a year.
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 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.