Double counting is an error that relies on counting more than once one transaction in any possible case. As an effect we get overestimation of anything we wanted to measure. It is very common in accounting, as example of the situation we can imagine that there is a need to include, to computation of domestic gross product, intermediate products costs that were used to create a final product (Fu et al., 2011).
It also can appear in social accounting and then it make reference to a problem in social accounting practice that is conceptual. Approximately it happens while estimating a process in which when Gross Output need to add some new value or entire investment value need to be added (Dechow et al., 2011).
Methods of avoiding double counting
To avoid double counting we need to avoid overestimating values of domestic products so the main focus need to be exactly on the right prices that are adequate for the quantities, and nothing can be over-counted. To avoid such thing people being responsible for estimating values of products usually count it more than once, or even more than twice (Drury, 2013).
There are two methods that can help with this error:
- Final Output method in which considered value is only final services and goods value is evaluated not any intermediates products.
- Value added method this method suggests to estimate every stage of production after adding any value to it and after it (Kieso, Weygandt & Warfield, 2019).
Methods of avoiding double counting on the scale of the ecosystem (Fu et al., 2011):
- The first step is to disentangle all the interrelations in the ecosystem and establishing the clear plan of ecosystem service valuation.
- The other factor to consider is the fact that different methods are dependent of each other and cannot be treated without the context of the research.
- The crucial step is to establish consistent system of rating ecosystem services. This effectively avoids the problem of double counting.
- Dechow, P. M., Ge, W., Larson, C. R., & Sloan, R. G. (2011). Predicting material accounting misstatements, "Contemporary accounting research", 28(1), 17-82.
- Drury, C. M. (2013). Management and cost accounting, Springer.
- El Serafy, S. (1998). Pricing the invaluable: the value of the world’s ecosystem services and natural capital, "Ecological Economics", 25(1), 25-27.
- Fu, B. J., Su, C. H., Wei, Y. P., Willett, I. R., Lü, Y. H., & Liu, G. H. (2011). Double counting in ecosystem services valuation: causes and countermeasures, "Ecological research", 26(1), 1-14.
- Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting, John Wiley & Sons.
- Koopman, R., Wang, Z., & Wei, S. J. (2014). Tracing value-added and double counting in gross exports, "American Economic Review", 104(2), 459-94.
- Scott, W. R. (1997). Financial accounting theory, Upper Saddle River, NJ: Prentice Hall (Vol. 343).
- Turner, R. K., Adger, W. N., & Brouwer, R. (1998). Ecosystem services value, research needs, and policy relevance: a commentary, "Ecological Economics", 25(1), 61-65.
Author: Mateusz Fudala