income approach

Examples of income approach in the following topics:

• Other Approaches to Calculating GDP

  • The income approach evaluates GDP from the perspective of the final income to economic participants.
  • It can be measured a few different ways and the most commonly used metric is the expenditure approach; however, the second most commonly used measure is the income approach.
  • The income approach unlike the expenditure approach, which sums the spending on final goods and services across economic agents (consumers, businesses and the government), evaluates GDP from the perspective of the final income to economic participants.
  • The sum of COE, GOS, and GMI is called total factor income; it is the income of all of the factors of production in society.
  • By definition, the income approach to calculating GDP should be equatable to the expenditure approach (Y = C + I+ G + (X - M)).

• Defining GDP

  • The income approach and the expenditure approach highlighted below should yield the same final GDP number .
  • The expenditure approach attempts to calculate GDP by evaluating the sum of all final good and services purchased in an economy.
  • The income approach looks at the final income in the country, these include the following categories taken from the U.S.
  • "National Income and Expenditure Accounts": wages, salaries, and supplementary labor income; corporate profits interest and miscellaneous investment income; farmers' income; and income from non-farm unincorporated businesses.
  • The income approach, alternatively, would focus on the income made by households as one of its components to derive GDP.

• Valuing the Corporation

  • Three approaches are commonly used in corporation valuation: the income approach, the asset-based approach, and the market approach.
  • Three different approaches are commonly used in business valuation: the income approach, the asset-based approach, and the market approach.
  • Generally, the income approach determines value by calculating the net present value of the benefit stream generated by the business (discounted cash flow); the asset-based approach determines value by adding the sum of the parts of the business (net asset value); and the market approach determines value by comparing the subject company to other companies in the same industry, of the same size, and/or within the same region.
  • In contrast to the income-based approaches, which require the valuation professional to make subjective judgments about capitalization or discount rates, the adjusted net book value method is relatively objective.
  • Distinguish between the income, asset-based, and market approaches for corporate valuation

• Calculating GDP

  • GDP can be calculated through the expenditures, income, or output approach.
  • There are a few methods used for calculating GDP, the most commonly presented are the expenditure and the income approach.
  • Both of these methods calculate GDP by evaluating the final stage of sales (expenditure) or income (income).
  • The most well known approach to calculating GDP, the expenditures approach is characterized by the following formula:
  • The income approach adds up the factor incomes to the factors of production in the society.

• Gross Domestic Product

  • The income approach works on the principle that the incomes of the productive factors must be equal to the value of their products.
  • This approach determines GDP by finding the sum of all producers' incomes.
  • The expenditure approach only measures products that are intended to be sold.
  • The production approach is also known as the Net Product or Value Added method.
  • These five income components sum to net domestic income at factor cost.

• Learning from GDP

  • GDP can be evaluated by using an output approach, income approach, or expenditure approach.
  • The output approach focuses on finding the total output of a nation by directly finding the total value of all goods and services a nation produces.
  • The income approach equates the total output of a nation to the total factor income received by residents or citizens of the nation.
  • The main types of factor income are:
  • The expenditure approach is basically an output accounting method.

• National Income

  • A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted national income (NNI* adjusted for natural resource depletion).
  • The output approach focuses on finding the total output of a nation by directly finding the total value of all goods and services a nation produces:
  • The income approach equates the total output of a nation to the total factor income received by residents or citizens of the nation:
  • The expenditure approach focuses on finding the total output of a nation by finding the total amount of money spent and is the most commonly used equational form:
  • The expenditure approach is a common method for evaluating the value of an economy at a given point in time.

• Overview of Income Tax Accounting

  • Also, the actual amount of tax liability due to the IRS may not be the same as the income tax expense reported on the income statement.
  • Temporary difference: The book income (income shown on the company financials) may be higher one year, but lower in future years.
  • The deferred method is an income-statement-oriented approach.
  • It is a balance-sheet-oriented approach.
  • This allows the company to deduct the loss against future taxable income.

• Introduction to the Income Statement

  • The income statement is prepared on an accrual basis.
  • There are two types of income statement, a single-step income statement and a multi-step income statement.
  • The single-step income statement takes a simpler approach, totaling revenues and subtracting expenses to find the bottom line.
  • The multi-step income statement is more complex.
  • When combined with income from operations, this yields income before taxes.

• Defining the Income Statement

  • The important thing to remember about an income statement is that it represents a period of time.
  • The income statement can be prepared in one of two methods.
  • The Single Step income statement takes a simpler approach, totaling revenues and subtracting expenses to find the bottom line.
  • Adding to income from operations is the difference of other revenues and other expenses.
  • When combined with income from operations, this yields income before taxes.