Category: Commerce Notes PPT

Children are always taught by their parents about the significance and effectiveness of keeping track of the money spent. It will be easier if whatever transactions, income, expenditure, profit, loss, bank statements and all are recorded, categorized and “shelved” by each individual for being financially constructive. 

In industrial or professional settings, such recordings gain utmost prominence since money matters a lot, as so is equivalent properties. 

Here, the ledger comes to play. 

The word “Ledge” means “shelf”. And from there the word “Ledger” was derived. 

Ledger is basically a record of such important transactions that take place. A deeper look at ledger and ledger posting is discussed here. 

The way towards bookkeeping contains a few significant advances. Initially, we need to ledger all exchanges in a particular configuration in an accounting journal. Following that, we need to move these individual entries to ledger accounts. Accountants allude to this procedure as ledger posting.

Features of Ledger

Some of the features of a ledger account are:

1. Classification

The first significant attribute of the ledger is the order of monetary exchanges. The purpose of ledger accounts is to characterize the exchange into accounts. The ledger contains various accounts. Every budgetary exchange is grouped into these accounts. 

2. All accounts

The ledger contains all accounts such as purchase account, sales account and so forth. In other words, the ledger is a book or register, which contains all accounts. Accounts are opened in the ledger both at the hour of the beginning of business (desire bases) and during the year (need bases). 

3. Significant Information

One of the features of the ledger in accounting is holding applicable data in a single spot. For instance, the exchange with client A can be found in the general ledger of Mr A. This account would mirror all the exchanges of Mr A. 

4. Mix-up Tracking

Among other features of the ledger, optimizing data is the one. This is extremely useful for mistake rectification. For instance, when a purchase is exaggerated, at that point in a perfect world, the bookkeeper would survey the purchase accounts following the slip-up.

5. Trial Balance 

PreparationTrial Balance is removed from the closing balance of General Ledger. In this way, the ledger assumes a significant job in the readiness of fiscal reports. Trial balance extraction is the initial move towards the arrangement of budget reports with both journal entry and ledger entry.

6. General Ledger and Subsidiary Ledger 

The general ledger is utilized by small scale associations and contains all accounts of budgetary things, while auxiliary ledgers are kept in the huge association as a memorandum ledger which contains the individual account of clients and creditors. General ledger likewise contains total accounts for these things. These were some of the features of the ledger.

Importance of Ledger

The importance of ledger is described in the following:

• Figuring of Profit/Loss: Its planning is an inescapable advance for any association for computing the situation of profit or loss in their business since it is difficult to make further accounts without getting ready pertinent ledgers.

• The Definite Situation of an Account: It refers to the situation of the accounts whether they have a remarkable or owing balance at the hour of shutting the ledger. 

• Time Saver: As all the entries are recorded in one spot, it gets simpler and efficient while getting further accounts ready, for example, trading, profit and loss accounts.

• Imperative: One importance of ledger is that it encourages in keeping up the rightness or precision of the exchanges held during the life expectancy of the organization.

Advantages of Ledger

Some of the advantages of the ledger are:

• It is the ledger through which effective use of the double-entry system of accounting is guaranteed. Every single transaction is partitioned into two sections – collector and supplier – and recorded in the two concerned accounts in the ledger. 

• Exchanges identifying with various people or concerns are recorded in the account of every individual or concern independently. Therefore, complete and reliable data is accessible in regard to every single account. 

• Various kinds of income and expenses are recorded in various accounts independently. Thus, it is conceivable to learn the measure of income and expenditure under each head and the general outcome at the year-end through trading and profit and loss accounts.

• A separate account is opened for every detail of assets and liabilities. It is, in this manner, conceivable to find out the estimation of various assets and liabilities and the genuine budgetary situation at the year end through the company balance sheet.

• Exchanges being recorded in the journal last longer in the ledger and the chances of mistakes and defalcations are distant. 

• One of the advantages of a ledger includes that significant data and measurements are gathered from the ledger and provided to the administration to empower them to run the whole thing proficiently.

Disadvantages of ledger

• There are chances of the ledger being totally unsafe if someone else gets access to the book or system file. If the user is careful, then the ledger is way safer.

• You will have to keep a constant eye on the ledger files as they can contain very serious and sensitive files along with other such information.

• Ledger depends on the transaction data entered in it. If an error occurs in the transaction data, the entire results will have an error and will thus become undependable. 

• The ledger will take a lot of users’ time and energy. It is also difficult as we have to keep a check if our records are safe or not, also.

The provided information is totally useful for the students and will give a clear understanding of the ledger and ledger posting.

Any kind of business partnership form is prone to suffer from unlimited liability. The liabilities of the partners involved in the business tend to extend to their personal assets. And this, in turn, makes the partnerships undesirable for many entrepreneurs. However, there exists a solution for this kind of issue which is known as limited liability partnerships, which is referred to as the LLPS full form. Let us discuss LLP and Private Limited and how to change from LLP to Private Limited Company.

LLPs are actually very common, and it is not like one needs to be an accountant or a lawyer to actually grasp the meaning behind it. LLPs are very common due to the fact that it deals with limited liabilities. This means a sort of business partnership where all the liabilities a person has been restricted to the money he/she invests only. This means that in case the person is unable to get profitable returns, creditors cannot seize their personal assets. 

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Limited Liability Partnerships 

Partners of the partnership firms possess unlimited liability for their total debts and legal consequences. In this, their assets are liable to get attached to meet the debts and liabilities of the firm. However, the LLP formation solved this issue.

LLPS have all the primary features of a partnership firm, except that of the unlimited liability of the partners involved and same legal entity status. Also, llps include legal existence and the identities are separate from their partners. 

LLP Meaning

The Limited Liability Partnership Act was passed by the Parliament of India in the year 2008 for governing the LLP businesses in the country. The Section 2 of this law states that the LLP is a type of partnership which is registered under this act. Also, the LLP agreement refers to the written agreement between either the LLP partners or the LLP itself and its partners. This agreement tends to define the duties, liabilities, rights and powers of the partners in the LLP.

Since this Limited Liability Partnership Act typically governs the LLPs in India, the Indian Partnership Act, 1932 provisions are not applicable to the Limited Liability Partnerships. They are only applicable to the traditional partnership businesses.

Nature of Limited Liability Partnership

The Limited Liability Partnership consists of the features mentioned below:

1. Distinct Legal Entity

The Limited Liability Partnerships, unlike the traditional partnership firms, are considered as separate legal entities. LLPs may own assets and incur the liabilities in their names. Also, they can enter into the contracts and can sue and be sued in their names.

2. Limited Liability of the Partners Involved

The liabilities of the partners in an LLP are limited and separate. Their personal assets are not liable to the attachment if the LLP is suffering or winding up legal consequences of debt or repayments. 

However, the liability of the partners could become unlimited in certain offensive cases like frauds, illegal and wrongful acts, or commission of offences.

3. Profit Sharing

All the partners of the Limited Liability Partnership would share business profit similar to the partners of the traditional firms. However, they are free to decide the profit ratios amongst themselves. 

4.Partners of Limited Liability Partnerships

The partners of the LLPs can be either body corporations or individuals. Also, an individual cannot be a partner in an LLP in case he or she is insolvent or does not have a sound mind. 

The LLPs should have at least two partners during all the times. Furthermore, the number of the partners that can be involved is unlimited, whereas in the regular partnership firms the partners are restricted to a number of 50 people. If, in case, the number of LLP partners get less than two and if the sole partner carries the business for over six months, then under these circumstances, their liability towards the business’s firm would be unlimited.

LLP and Partnership

Given below is the Difference Between a Limited Liability Partnership and the Traditional Partnership.

Difference Between a Limited Liability Partnership and the Traditional Partnership

 

The Number of Partners in LLP

Every LLP needs to have at least two people that are partners, and two people that are designated partners. The number can extend to anything beyond this, but this is the minimum that is required. At least one of the designated partners needs to be an Indian citizen and resident. There is no cap on the maximum number of partners that can be there in an LLP. 

 

An Artificial Person for Legal Purposes

The law recognises LLPs as artificial legal persons, and therefore they can have all the rights that a person is supposed to have. 

 

Can a private entity be converted to LLP?

According to the provisions of the Act, it is possible for a private entity or firm to transform into LLP. any unlisted public company can do this at any given time. 

Why the need for LLP?

It has been seen that people who mainly depend on LLPs have a certain reputation they can work with. LLPs are usually operated by people who have influence, power and experience so that their venture does not crash. This is also why creditors pay them money. They put together resources to gain more profit and increase the prospects that the LLP has of growing. 

 

Sometimes, LLPs may have junior partners who work for a salary and have no stake whatsoever in the LLP. It is possible that they work with the hopes of becoming senior partners someday and then having a share in the LLP. This is an important method of delegating responsibilities. 

Have you ever heard people around talking about other people’s managerial skills or admired someone as a Management Professional? So is Management an Art, Science or a Profession? To your surprise, it can take up any role depending on its area of application. ’s subject matter experts in commerce have brought this write-up to explain to you precisely this. 

 

The thought regarding ‘is Management an Art or Science’ has always been conflicting. Therefore, students must understand how Management can be an Art, Profession, or Science depending upon its relevant features. 

 

Management as Science

To qualify as a Science, Management needs to stand true to various criteria which make any field scientific. Below are qualities of Management that prove that it is a type of Science.   

Scientific principles are universally accepted principles and can be applied across all situations, locations, and times. For example, Newton’s law of motion applies to every object in motion irrespective of its location and state. Similarly, Management as well comprises specific fundamental principles that are accepted worldwide. For instance, the principle of unity of command applies to all organizations, large and small.

 

In Science, every cause results in an effect. This phenomenon is known as causality. To put it simply, every event occurs due to reason. For instance, rusting of iron is due to the reaction between iron and oxygen in the presence of water molecules. Similarly, Management follows the same rule. Every action has consequences, like if employees aren’t treated well, then productivity will degrade. Conversely, an organization can attain increased productivity if the workers are given a bonus and satisfactory remuneration.

 

Science is all about facts and logic and deduces results through experimentation and observation. The principles of Management have been formed along the same lines. For instance, equal work opportunities and fair remuneration for the work are known to improve one’s productivity at work. This idea was derived through scientific observation.

 

Every scientific principle and law is tested for validity and can be verified at any given point in time, and it shall provide a similar result each time. Likewise, one can test the principles of Management and expect the same results every time. Consider two companies A and B. Let’s say, company A has one boss who administers that company’s operations, whereas company B has two bosses and they both try to manage the organization as per their judgment. An experiment will show that company A performs better with one superior to direct all. 

 

Subsequently, the answer to the question ‘is Management an Art or Science’ is Science if not both. But in reality, Management can act as both. Here’s how that is possible. 

 

Management as an Art

To qualify as Art Management needs to adhere to some basic traits of Art. Such traits associated with Management are given below: 

Art is personalized, and the style of every Artist is different. Each Artist has a different perspective, style, and a different approach to a job. Likewise, one can successfully manage their organization only with their skills. Here, one’s approach to the tasks at hand will be different from another, and hence Management can be considered an Art. 

 

Every Artist is creative, and similarly, managers need to show creativity and innovation in the decisions they make for their business to stand out and gain a competitive edge. Hence, creativity and innovation in Management help managers take unique yet effective decisions.

 

Art supports and believes the importance of theoretical knowledge and hence most of the Art classes, whether it is music, painting, or dance also carry theoretical papers for students to study. And evidently, practical knowledge forms the basis of Art. In Management, the significance of theoretical and practical knowledge is not new. With a theoretical understanding of Management principles and their subsequent practice, managers can perform better in managing their organizational goals.

 

An Artist becomes seasoned with years of practice and dedication towards their work. Management as Art speaks the same terms. Managers have to go through this trial and error method before they can become seasoned managers who can make appropriate decisions.

 

An Artist never works on their piece of Art without any goals in mind; goals make them more focused and act accordingly for its fulfillment. The same holds for Management. A manager must set objectives and work towards achieving them to become proficient in their endeavor. 

 

From the above speculations, it can be derived that Management as an Art and Science is a plausible claim. 

 

Multiple Choice Questions 

1. Choose the appropriate option concerning Management, it is 

1. Art, Science, math

2. Art, Science, Profession

3. Art, social Science, and Profession

4. Art, Science, and commerce

Answer: b

 

2. Management can be termed as a creative as well as a ___________ process. 

1. Continuous 

2. Democratic 

3. Technical 

4. None of the above 

Answer: a 

 

3. At which level of organization Management exists?

1. Top 

2. Middle 

3. Lower 

4. All of the above 

Answer: d

 

4. Principles of Management are made by 

1. Rule of thumb 

2. Customer experience 

3. Observation and experimentation 

4. Laboratory experiments 

Answer: c

 

Management as a Profession

Management can be carried off as a Profession by individuals who have gained proper education and graduated the relevant tests. Students are taught essential concepts of Management and need to pass pArticular exams so that they can work as a manager in future. They also need to qualify for an entrance examination to get enrolled in an institution for an educational degree. 

 

Further, they can work as Professionals and manage various activities in an organization. With the learnt principles of Management, they put their knowledge to a test and use various tried and tested methods and innovative ways to achieve effective Management.

 

Management as an Art, Science, and Profession can help businesses achieve their goals effectively. And hence, students need to acquire in-depth knowledge of the topic to improve their academic performance. 

 

Students can go through the Management Science notes and acquire a profound knowledge of the subject. They will also be able to use this theoretical knowledge later to gain experience in the field. For other such topics, students can access the study materials available at ’s app and website.

Conclusion

Reading this Article on Management as an Art, Science and Profession, MCQs and FAQs complete your introduction to the field of Management. Management is something that is not just restricted to the domain of academics, but it can stretch further into our daily and Professional lives as well.

It teaches you that unlike the popular belief that goes around Management is not just a Profession but is also an Art and Science. It is an extremely practical field of work knowledge of which would be incomplete only with theoretical knowledge. 

Reading this essay prepared by ‘s subject matter experts will not just help you score excellent marks in your board exams but also during higher studies that you will pursue in the future. You may refer to other ’s websites to gain more knowledge on other topics of commerce.  

Average Due Date Formula

Talking about the current scenario of businesses, there are a great number of payments and receipts that get involved even if it is related to just one party. And all these may or may not occur at the same point of time. For simplifying the interest calculations that are involved in these transactions, methods like calculating the average due date come very handy. According to this concept, the person clears their dues on a specific date in such a way that neither the creditor nor the debtor suffers any kind of gain or loss by way of interests. This date is referred to as the average due date or ADD.

Meaning Calculation of Average Due Date in Various Situations

Average due date is usually used in situations as mentioned below.

1. To calculate the interest of the drawings of partners.

2. To settle accounts between agent and principle.

3. To settle contra accounts wherein parties sell product to one another.

4. To make a lump sum payment against several bills that are drawn on varying dates with different due dates.

Average Due Date= Base date ± [frac{text{Total of the Products}}{text{Total of the Amounts}}]

Case 1: When Just one Party is Involved

According to this Method, the Average due date is Calculated in the Following Manner.

1. The first due date is taken as the starting day or O day or base date.

2. The number of days from the base date are counted up to every due date.

3. Then the number of days are multiplied by the amounts.

4. The amount and the products are then added.

5. The product total is divided by the amount total and the result obtained is approximated to a whole number.

6. The number of days are added to the base date for finding the average due date. Hence, the average due date formula is given by:

Average Due Date= Base Date ±  [frac{text{Total of the Products}}{text{Total of the Amounts}}]

Note: To calculate the number of days, the number of days in every respective month involved are individually considered.

Case 2: When there are Inter-Transactions Between Two Parties

Under this case there is an involvement of more than one party. Here, the first party purchases from a party and sells it to the other. An example of this is Raymond Clothes and Cello Co. Raymond Clothes sells its clothes to Cello for the use of their employees and in return buys pens from them. In this case, they pay the net amount and not the gross amount. Hence, net amount, which is the difference of the amounts is taken into consideration and the earliest date taken for both the parties is the base date.

Case 3: When the Amount is Paid in Instalments

Under this scenario, the amount is to be lent in a single lump sum and the repayment is done in several installments. The steps given below are followed in this case.

1. The number of days from the lending date to the date of every payment are calculated.

2. The total number of these days or months or years are calculated.

3. The quotient would be the total number of days by which the average due date tends to fall away from the loan commencement date.

4. In case the installments are the same, simple mean concept is used wherein the days are divided by the total number of products.

Formula:

[text{Average Due Date = Date of Loan } pm frac{text{Sum of days/Months/Years From the Lending Date to the Installment Repayment}}{text{Total Number of Installments}}]

Case 4: To Calculate the Average due Date to Calculate Interest on the Drawings

When there are drawings, the owner tends to draw the amounts from the businesses of different dates but can settle them on a single date. If different amounts are due on various dates but settled on a single date, the interest gets calculated with the help of the average due date method. 

Solved Example

Example:

Determine the Average Due Date from the Following Amounts.

Solution:

Considering that 3rd April is the starting day, a table is prepared as follows:

Whenever the topic of business correspondence surfaces, the most important question is what is business correspondence. The meaning of correspondence is a letter. Anyone associated with any business expresses themselves in terms of business correspondence. The importance of business correspondence is immense in any business. They can express their ideas, question or raise concerns about any aspect of the company through business correspondences. Business correspondences do not only refer to individual letters but also the letters exchanged between the companies or organizations. It can be a letter of complaint, an inquiry letter, a letter to any supplier, an application letter for jobs, etc.

 

Business Correspondence Letter

 

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Whenever we need to contact any person, we send them letters or texts. A similar approach is followed in businesses as well. Such a kind of communication in business is called business correspondence. Business correspondence can be defined as the means of expressing in terms of business. 

 

The letters written during such business transactions are called business correspondence letters. Such written documentation is required since no one can remember all the details of the business for the entire length of the business. Therefore, they prefer to write down the details, which is known as business correspondence. 

 

Why do we need a Business Correspondence Letter?

For the smooth running of any business, business correspondence is necessary. The utmost importance of business correspondence is that it eases reaching out and communication between different parties. For any business deal, meeting delegates in person might be a hectic task. Therefore, it is better to exchange correspondences in this regard.  Business correspondence meaning lies in helping and achieving the goal of the company. Some of the company goals achieved through business correspondences are:

Running a business is a tedious task. There are so many aspects of any business that the business owners hardly find any extra time to interact with the clients and the associated parties on a personal basis. In general, as a business grows, it is impossible to reach out to all the parties in person. Under such circumstances, it is necessary to communicate through business correspondence.  Such a means of communication in terms of business correspondences helps to strengthen the business relationship. Modern business correspondences like PDF can also be shared amongst the parties. Such activities improve internal communication and make them precise and clear. Maintaining a good relationship with all associated parties is considered the prime importance of business correspondence. 

Documentation of all important communications is necessary for keeping track of the growth of relations between different parties. It is important to maintain all these documents as proof of such communication so that the business owners can revert to them whenever needed as references. Moreover, such documents can be used to file lawsuits against those parties who will not act as per the terms and conditions allowed in the correspondences.

For any business to thrive, it is imperative to generate goodwill amongst the parties. Having every conversation in the record creates a professional impression that is appreciated by all parties. The company must accept all letters related to inquiries, complaints, suggestions and feedback related to the services of the company.  Such approaches by the company help to generate and maintain the goodwill of the company.

Business correspondences are considered to be the most convenient and cheapest form of business communication. It only requires an exchange of letters amongst the parties.

Any kind of business communication is considered between two parties. It can be between two business partners, the employer and the employee and the sellers and the buyers. The language used in these business correspondences, like the advanced business correspondence PDF, is logical, concise and formal. Such an approach helps to do away with any kind of ambiguity and is considered to be acceptable and followable by all parties. The precise nature of the letters outlines the importance of business correspondence.

Having formal correspondences related to the business ensures that the business can reach all its targets. Therefore, it allows the business to expand and set newer goals for them. Through such business correspondences, novel information about the market for any specific product can be obtained. Business correspondences can also be used to spread the news of business expansion.

 

Different Types of Business Correspondence

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There are different types of business correspondence letters. The types and functions of business correspondence include:

• Internal Correspondence- The exchange of information in the form of correspondence between different individuals, departments, sectors or branches of the same company.

• External Correspondence- It exists between two individuals but not from the same company. It can be between the producer and the suppliers, collaborators, etc.

• Routine Correspondence- Business correspondences made routinely are called routine correspondences. These include order, inquiries, replies, acknowledgements, etc.

• Sales Correspondence- It is related to the sales of the company. These include sale reports, sale letters, confirmation of orders, invoices, etc.

• Personalized Correspondence- Such letters contain emotional inputs. Letter of recommendation, request, or congratulatory letters are examples of personalized correspondence.

• Circular Correspondence- business correspondences that are issued in common for a large number of people are called circulars. These include notices, tenders, news, announcements, etc.

The first three types of business correspondence are major. More information on the business correspondence can be obtained through business correspondence and report writing PDF free download.

National income refers to the monetary value over a period of time of the output flow of goods and services produced in an economy.

 The Uses of National Income Statistics

Measuring the level and rate of growth of national income (Y) is essential to keep track of:

• The rate of economic growth

• Changes to living standards

• Changes to the distribution of income b/w groups

 

Gross Domestic Product

The total value of output in an economy is the Gross Domestic Product (GDP) and is used to measure economic activity changes. GDP encompasses the production of foreign-owned enterprises located in a country following the foreign direct investment.

 

There are three different ways to calculate GDP that should all add up to the same amount: The national output is equal to national expenditure (Aggregate demand) which in turn is equal to national income.

 

The equation for GDP using this approach is 

GDP = C(Household spending) + I(Capital investment spending) + G(Government spending) + (X(Exports of Goods and Services)-M(Imports of Goods and Services)

The three different ways to measure GDP are – Product Method, Income Method, and Expenditure Method.

 

These three calculating GDP methods yield the same result because National Product = National Income = National Expenditure.

 

1. The Product Method:

In this method, all goods and services produced during the year in various industries are added up. This is also known as value-added to GDP or GDP at the sector of origin’s cost factor. India includes the following items: agriculture and allied services; mining; development, construction, the supply of electricity, gas, and water, transport, communication, and trade; banking and industrial real estate and property ownership of residential and commercial services and public administration and defence and other services (or government services). It is, in other words, the amount of the added gross value.

 

2. The Income Method:

In a nation that produces GDP during a year, people earn income from their jobs. Thus the sum of all factor incomes is GDP by revenue method: wages and salaries (employee compensation) + rent + interest + benefit.

3. Expenditure Method:

This approach focuses on products and services generated during one year within the region.

GDP is subtracted from the portion of consumption, investment, and government spending expended on imports. Likewise, all manufactured components, such as raw materials used in the manufacture of products for sale, are also exempt.

Thus GDP by expenditure method at market prices is net export, which can be positive or negative.

4. GDP at Factor Cost:

GDP is the amount of net value added by all producers within the country at the cost factor. Since the net value added is allocated as revenue to the owners of production factors, the sum of domestic factor incomes and fixed capital consumption is GDP (or depreciation).

Thus, 

GDP at Factor Cost is equal to the sum of  Net value added and Depreciation.

GDP at factor cost includes –

Compensation of employees, i.e., wages, salaries, etc.

Operational surplus, which is both incorporated and unincorporated companies’ business profit. 

Mixed-Income of Self- employed.

 

Conceptually, GDP at the cost factor and GDP at the market price must be equivalent since the cost factor (payments to factors) of the products produced must be equal to the final value at market prices of the goods and services. The retail value of products and services, however, varies from the earnings of the output factors.

5. Net Domestic Product (NDP):

The NDP is the value of the economy’s net production throughout the year. During the manufacturing process, some of the country’s capital equipment wears out or becomes redundant each year. A certain percentage of the gross expenditure removed from GDP is the amount of this capital consumption. 

Net Domestic Product = GDP at the expense of Factor – Depreciation

6. Nominal and Real GDP:

It is referred to as GDP at current prices or nominal GDP when GDP is calculated based on the current price. On the other hand, if GDP is measured in a given year based on fixed costs, it is referred to as GDP at constant prices, or actual GDP.

Nominal GDP is the value of the goods and services produced in a year, calculated at the current market) prices in terms of rupees (money). 

Three Important Methods for Measuring National Income

There are three techniques to compute national income:

 

Income Method

National income is calculated using this method as a flow of factor incomes. Labor, capital, land, and entrepreneurship are the four main components of production. Labour is compensated with wages and salaries, money is compensated with interest, the land is compensated with rent, and entrepreneurship is compensated with profit.

 

Furthermore, certain self-employed individuals, such as doctors, lawyers, and accountants, use their own labour and capital. Their earnings are classified as mixed-income. NDP at factor costs is the total of all of these factor incomes.

National Income is calculated as a flow of income in this case.

NI can be calculated as follows:

 

Employee compensation + Operating surplus (w + R + P + I) + Net income + Net factor income from overseas = Net national income.

 

Where,

Wage stands for wage and salaries

R stands for rental income.

P stands for profit.

I stand for mixed-income.

 

Product/ Value Added Method

National income is calculated using this method as a flow of goods and services. During a year, we determine the monetary value of all final goods and services generated in an economy. The term “final goods” refers to goods that are consumed immediately rather than being employed in a subsequent manufacturing process.

Intermediate goods are goods that are used in the manufacturing process. Because the value of intermediate products is already included in the value of final goods, we do not count the value of intermediate goods in national income; otherwise, the value of goods would be double-counted.

To avoid duplicate counting, we can use the value-addition approach, which calculates value-addition (i.e., the value of the end good plus the value of the intermediate good) at each stage of production and then adds them together to get GDP.

The sum-total is the GDP at market prices since the money value is measured at market prices. The methods outlined before can be used to convert GDP at market price.

The flow of goods and services is used to calculate national income.

NI can be calculated as follows:

 

G.N.P. – COST OF CAPITAL – DEPRECIATION – INDIRECT TAXES = NATIONAL INCOME

Expenditure Method

National income is calculated using this method as a flow of expenditure. The gross domestic product (GDP) is the total of all private consumption expenditures. Government consumption expenditure, gross capital formation (public and private), and net exports are all factors to consider (Export-Import).

As said above, the flow of expenditure is used to calculate national income.

The Expenditure technique can be used to calculate NI as follows:

 

NationalIncome+NationalProduct+NationalExpenditure=National Income+National Product+National Expenditure=National Expenditure.

So, the ideas of National Income were thoroughly discussed above. Students who are preparing for various exams such as UPSC and SSC.