In your basic accounts lessons, you must have learned the concepts of income and expenditure, assets and liabilities, profit and loss, and so on. Now, these concepts are important because they set the financial foundations for a successful business. However, it doesn’t stop there. These concepts are equally important for an economy as a whole. Let’s look at Income method and Expenditure Method of calculating National Income.
National income or the gross national income is the total income earned by all residents and enterprises of a country over a specific period. You can also define national income as the total value of all goods and services produced over a specific period of time. Now, there are several methods of calculating national income.
The three most common methods are the value-added method, the income method, and the expenditure method. The value-added method focuses on the value added to a product at each stage of its production.
Next, the income method focuses on the income received on the factors of production such as land and labor. And finally, the expenditure method focuses on the various types of expenditure based on consumption and investment. Let’s look at the income and expenditure methods in detail.
Correct Answer: True. Royalty is a form of income and it should be accounted for while calculating national income using the income approach.