There are three methods of GDP accounting, namely, the production method, the income method and the expenditure method, which reflect the results of productive activities in the national economy from different perspectives.
The production method is a way to measure the new value created by resident units in the accounting period from the perspective of production, i.e., from the value of the total products produced by each sector of the national economy in the accounting period, the value of the intermediate products invested in the production process is deducted to obtain the value added. The accounting formula is: value added = total output - intermediate inputs. The income approach is a method of accounting that reflects the final result from the point of view of income generation from the production process, based on the share of income attributable to the factors of production in the production process. According to this method of accounting, value added is obtained by adding up four components: compensation of labor, net taxes on production, depreciation of fixed assets and operating surplus. The expenditure method measures the final destination of products and services during the accounting period from the point of view of end-use, and consists of three components: final consumption expenditure, gross capital formation, and net exports of goods and services.
I. Expenditure method of accounting for GDP
Expenditure method of accounting for GDP, from the use of the product, the final product purchased within a year of expenditure summed up the market value of the final product produced during the year. This method is also known as the final product method and the product flow method. From the point of view of the expenditure method, GDP includes all resident units of a country (or region) in a certain period of time for final consumption, gross capital formation, and total net exports of goods and services, which reflects the use of GDP produced in the current period and its composition.