Definition and background of value added and the value added statement (VAS) :

The concept of value added was initially used in 1790 in the first North American Census of Production (Gillchrist 1970). Trenche Cox, a treasury official, whose techniques have since been adopted by most industrial nations in the calculation of Gross National Product (GNP), was responsible for realising that value added would avoid double counting.

Value added has also been defined in the economic literature by Ruggles and Ruggles:

The value added by a firm, i.e. the value created by the activities of the firm and its employees, can be measured by the difference between the market value of the goods that have been turned out by the firm and the cost of those goods and materials purchased from other producers. This measure will exclude the contribution made by other producers to the total value of the firm’s production, so that it is essentially equal to the market value created by this firm. (1965, 50)

The VAS is therefore based on an economic definition of value added and calculates value added in accordance with the calculation of GNP.

Suojanen (1954) suggested the value added concept for income measurement, as a way for management to fulfill their accounting duty to the various interest groups by providing more information that was not possible from the income statement and balance sheet. This makes him one of the first writers to use the value added concept in terms of accounting for the results of an enterprise.

In general words, “value added can be defined as wealth generated by the entity through the collective efforts of capital providers, management and employees”.