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Several Adjustments Must Be Made to Net Domestic Product at Factor

question 38

Essay

Several adjustments must be made to net domestic product at factor cost in order to calculate GDP. One of these adjustments is adding depreciation. What is depreciation and why must it be added?


Definitions:

Normal Balance

The side (debit or credit) of an account that is typically increased. For asset accounts, it is a debit balance; for liability and equity accounts, it is a credit balance.

Two-column Journal

An accounting ledger that features two columns, typically used for recording debits in one column and credits in the other, to maintain financial transactions.

Equipment Purchase

The acquisition of physical assets like machinery, tools and vehicles needed for the operation of a business.

Fees Earned

Fees earned refer to income gained from providing services, representing the completion of service transactions over a period of time.

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