What Is the Income Approach?

The income method, also known as the factor payment method, refers to a method of calculating GDP data by adding the income of the owners of all production factors participating in the production process. These incomes include: wages of workers, interest of capital owners, rent of land owners, corporate profits, etc. In actual application, the data of the above four incomes are not GDP, but should also be added to corporate indirect taxes and depreciation, so as to obtain the GDP calculated by the income method. ^{[1] The} calculation formula is:

Income method

The income method, also known as the factor payment method, refers to a method of calculating GDP data by adding the income of the owners of all production factors participating in the production process. These incomes include: wages of workers, interest of capital owners, rent of land owners, corporate profits, etc. In actual application, the data of the above four incomes are not GDP, but should also be added to corporate indirect taxes and depreciation, so as to obtain the GDP calculated by the income method. ^[1]

The income method is also called the distribution method.

Value added = labor compensation + net production tax + fixed asset depreciation + operating surplus

The sum of the added value of the income method of the industrial sectors of the national economy is equal to the gross domestic product of France.

Income Law Workers' Compensation

Labor remuneration refers to the total remuneration that laborers deserve to engage in productive activities. Including wages, bonuses and allowances that workers deserve, both in monetary and in-kind forms, as well as public medical and medical expenses, commuting allowances for commuters and social insurance premiums paid by employees Wait. For the individual economy, it is not easy to distinguish between the labor remuneration obtained by the owner and the operating profit. These two parts are treated as labor remuneration uniformly.

When calculating the remuneration of the laborer, it is necessary to pay attention to the boundary between the physical income and the intermediate consumption as the remuneration of the laborer. If the production unit provides goods or services to workers engaged in production activities, it can meet the needs of workers in their leisure time and improve and improve their actual living standards. At the same time, other ordinary consumers can also purchase on the market To these goods and services, then this part of goods and services belongs to the workers' physical income. In order for the production unit to work normally, the goods and services provided for the workers, such as clothing or shoes provided for special work needs, and transportation and hotel service costs provided for business trips, are intermediate inputs.

Net income tax production tax

Net production tax refers to the difference between production tax and production subsidy. Production tax refers to various taxes, surcharges, and fees levied by the government on production units' production, sales, and operating activities and the use of certain production factors such as fixed assets, land, and labor for production activities, including sales taxes and surcharges , VAT, various taxes in management fees, payable road maintenance fees, sewage charges and water and electricity surcharges, tobacco and alcohol monopoly paid to the government's special income, etc. The production subsidy is the opposite of production tax. It is a unilateral transfer payment from the government to the production unit. Therefore, it is regarded as a negative production tax treatment, including policy loss subsidies and price subsidies.

Income method fixed assets

Losses Depreciation of fixed assets drawn in accordance with the approved fixed asset depreciation rate, or depreciation of fixed assets virtually calculated in accordance with the depreciation rate uniformly stipulated in national economic accounting. It reflects the transfer value of fixed assets in current production. The depreciation of fixed assets of various types of enterprises and enterprise-managed public institutions refers to the actual depreciation charges. Units that do not accrue depreciation, such as government agencies, non-enterprise-managed public institutions, and residential housing, depreciate fixed assets. Virtual depreciation calculated based on uniformly prescribed depreciation rate and original value of fixed assets. In principle, the depreciation of fixed assets should be calculated based on the replacement value of fixed assets, but China does not yet have a basis for revaluation of fixed assets in the whole society, so for the time being only the above method can be used to calculate

Income method operating surplus

Operating surplus refers to the balance of the added value created by the resident unit after deducting labor compensation, net production tax and depreciation of fixed assets.