Professional Documents
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Principles of Business Revision Notes
Principles of Business Revision Notes
Principles of Business Revision Notes
Direct production
Direct production means that human beings provide what they needed for
themselves and their families. This was the way in which early human beings
satisfied their wants and needs.
Subsistence economy
A subsistence economy, is an economy in which the people barely meet their
everyday needs. It is often seen as a major factor for poverty in developing nations.
This is because the people of the society do not trade with other groups, this may
be for a vary of reasons but a major one being their isolation. If the people of the
society do not produce enough food, or not a variety the people will become sick
and contract disease.
The people also do not have everyday items that we take for granted, such as
ipods, TV's, computers, fashionable clothes and shopping malls. This is because the
people do not produce enough surplus to trade with, sometimes not even producing
a surplus at all.
However with the creation of tools human learnt how to master their environment
by introducing simple specializationThis increased peoples ability to produce
resulting in the production of surplus is poverty.
Barter
Trade in the earliest times was conducted by means of barter, i.e. simple the
exchange of goods and services for other goods and services. For example if
house hold A had a cow and household B had a goat then trade could take
place if house hold A wanted what Household B had to trade and country B
wanted what house A had to trade.
This was not very convenient for the following reasons.
1. The other party might not have anything that you wanted in exchange
for what they wanted to trade.
2. There was the problem of unequal value where one partys goods
might not be available in convenient units or of the right value. For
example it might not be good offering a cow in exchange for a chicken.
3. It was very difficult to establish the relative value of the goods being
exchanged since there was no common measure of value.
Barter and contemporary society
Barter has now virtually died out, but barter still takes place between friends
or countries e.g. Trinidad trading petroleum for Jamaicas sugar.
Advantages
1. Surplus production could be disposed of through the barter system
2. Barter enabled a person to get what he/she did not have or could not
produced themselves.
3. It set the stage for the system of trade that existstaday.
4. Countries with foreign currency problems can barter and so save well
needed foreign currency for use on vital items such as drugs for the
sick.
7. Plastic money in the form of credit and debit cards and electronic
money through electronic transfers marks a trend towards a cashless
society.
Money as we know it today was invented by the Greeks about 650 B.C.
Because barter was so inconvenient, the use of money spread rapidly. We
usually think of money as coins and notes, but in fact other things have been
used as money including cattle, shells, beads etc. The first money consisted
of gold or silver coins, and their value was that of the weight of gold or silver
that they contained.
The growth of money in trading opened the door for economic growth and
development of societies.
Indirect Production
Direct production is the production of goods for one's personal use for
example; a person farming maize 4 his family.Indirect production is whereby
one produces his goods for sale e.g a cash crop farmer.
3.
4.
5.
6.
7.
8.
Tenor
The bill
Village
September, 2012
Trinidad, W.I.
10 th
In
$50,000
Signed
To; U Bolt
Kingston
Jamaica
of
date
Amount
words
debtor
(buyer
Acceptor
drawer or endorser)
amount in words
Or drawee)
A bill could be used where the seller sends the buyer a bill of exchange for
the amount due. The buyer accepts this by signing his name across its
face,thereby establishing a legally binding obligation to pay the amount of
the bill on the date specified ( a period of 3 6 months).
The bill, then, is a negotiable instrument.
Credit cards
A credit card is a plastic credit card with a magnetic strip. Holders of a valid card have the
authorization to purchase goods and services up to a predetermined amount, called a credit limit.
The vendor receives essential information from the cardholder, the bank issuing the card actually
reimburses the vendor, and eventually the cardholder repays the bank through regular monthly
payments. If the entire balance is not paid in full, the issuer can legally charge interest fees on the
unpaid portion.
Electronic Funds Transfer (EFT) is a system of transferring money from one bank
account directly to another without any paper money changing hands. One of the
most widely-used EFT programs is Direct Deposit, in which payroll is deposited
straight into an employee's bank account, although EFT refers to any transfer of
funds initiated through an electronic terminal, including credit card, ATM, Fedwire
and point-of-sale (POS) transactions. It is used for both credit transfers, such as
payroll payments, and for debit transfers, such as mortgage payments.
Telephone banking is a service provided by a financial institution, which allows its customers to
perform some banking transactions over the telephone.
Most telephone banking services use an automated phone answering system with phone keypad
response or voice recognition capability. To ensure security, the customer must first authenticate
through a numeric or verbal password or through security questions asked by a live
representative (see below). With the obvious exception of cash withdrawals and deposits, it
offers virtually all the features of an automated teller machine: account balance information and
list of latest transactions, electronic bill payments, funds transfers between a customer's accounts
An e-commerce payment system facilitates the acceptance of electronic payment for online
transactions. Also known as a sample of Electronic Data Interchange (EDI), e-commerce
payment systems have become increasingly popular due to the widespread use of the internetbased shopping and banking.
Over the years, credit cards have become one of the most common forms of payment for ecommerce transactions
What is a Business?
A business is an organization that provides goods or services, or both, with
the aim of making a profit. It could be a commercial or industrial
organization. Notwithstanding the fact that there are also non-profit
organizations such as government owned schools, service clubs and
churches the objective of a business is to realize a profit.
Functions of a business
1. To provide goods and services
2. To make a profit; the term profit means the excess of sales (revenue)
over the cost of doing business.
3. To provide income to government
4. To create employment
Factors of production
Factors of Production consist of Land, Labour, Capital and Entrepreneurship
Land (Natural resources): These include coal, oil, minerals, stone, fertile
soil, timber, fish in the seas and water which we drink.
Labour (Human resources): Labour describes all forms of work of hand or
brain needed to transform natural resources into a form useful to man.This
consists of skill, semi-skilled, and unskilled labour.
Capital (Financial resources):This consist of the money needed to buy
land, machinery and equipment and to pay the worker who provide the
labour.
Entrepreneur; Is the person who is courageous, creative and one who is
prepared to take the risks of starting his own business. Such a person is
usually innovative and may create new products and services, introduce new
technology or a new method of production.
Profits
Profit is defined as the excess of income over expenditure, especially in business
Profit is calculated using the following formula:
Loss
Businessloss is a state that occurs when a company fails to generate enough revenue to cover all
expenses associated with the operation of the business. That is Loss occurs where expenses
exceeding sales or revenues.
Total loss = Total revenue Total cost and a loss would exist where Total cost is
greater than total revenue.
Trade
Business organization
A business organization involves individuals, companies or corporations who
engage in industrial or commercial activity with a view of making a profit.
Althoough there are non-profit organizations such as government owned
schools, service clubs and churches, the objective of a business is to make
profits.
Economy:
Definitions
1. Economic activitiesrelated to the production and distribution of goods and
services in a particular geographic region or country. It also relates to the
correct and effective use of a countrys availableresources.
Market
In economics, a market is a group of buyers and sellers of a specific good or
service. A market usually does not refer to a physical location for the buying
and selling of products. Economists use the word "market" to describe a
mechanism of exchange between buyers and sellers of a good or service.
Definition: A market is any place where the sellers of a particular good or
service can meet with the buyers of that goods and service where there is a
potential for a transaction to take place. The buyers must have something
they can offer in exchange for there to be a potential transaction. A market
consist of 4 important elements;
Buyers
Sellers
Goods and services
price
Economy
The economy encompasses everything related to the production and consumption of goods
and services in a country.It consists of the economic systems of a country; the
Producer
A producer is a person who creates economic value, or produces goods
and services for sale.Producers play a huge role in any economic
system. This is because producers are the entities who are involved in
making goods and services. Producers include privately businesses as
well as publicly own enterprises.
generated within a social system. A consumer may be a person or group, such as a household.
The consumer is the one who pays to use the goods and services produced. As such, consumers
play a vital role in the economic system of a nation. In the absence of their effective demand, the
producers would lack a key motivation to produce, which is to sell to consumers.
Enterprise
A company (business) organized for commercial purposes; business firm,
directed towards profit. Private enterprise is based on capitalism.
.
Capital - All buildings, equipment and human skills used to produce goods
and services. It refers to the assets such as equipment, buildings and any
improvement to existing structures or plant and machinery to be used to
improve production as well as the money used to acquire natural and human
resources.
Exchange - Trading goods and services with others for other goods and
services or for money (also called trade). When people exchange voluntarily,
they expect to be better off as a result.
Commodity:
A commodity is the term used to describe any marketable item product to satisfy wants
and needs, In economics commodities comprised an article of trade or commerce,
especially a product distinguished from a service
UNIT 2
Internal Organizational Structure of Business
Business Units
Advantages
1.
2.
3.
4.
Easy to establish
Customers receive special attention
Profits are not shared
There may be a personal incentive to succeed
Disadvantages
1. Sole proprietorship has unlimited liability in the sense that all losses
and debts incurred by the business must be borne by the owner. In
other words if the business does not generate profits then the
owner may have to sell even his personal possessions in order to
pay off his/her debts.
Partnership
A partnership is a business that is jointly owned by the parties involved.
According to the partnership act of 1890, 2 to 20 persons can come together
to form a partnership.
Characteristics
The
The
The
The
Types of Partnerships
There are two types of Partnership arrangements:
General Partnership
In this arrangement all the partners have responsibility for the general
running of the business and have unlimited liability. If the business fails the
partners like the sole trader may have to use their personal resources to
cover the firms debts.
Limited Partnership
The provisions of a Partnership Act allow for the formation of a limited
partnership, where a minimum of one partner must have unlimited liability.
This means that if the business fails then the partner with unlimited liability
is responsible for the debts of the business.
In a limited partnership:
Advantages
Disadvantages
Each partner has to take responsibility for the acts of other partners, as
each partner can legally bind the business in contract.
Decision making is slower and even difficult because partners may not
agree on a particular approach to solve a business problem.
The limited companies are so called because the shareholders who are the
owners of the company have limited liability for the companys debts. "Limited
by shares" means that the company has shareholders, and that the liability of the
shareholders to creditors of the company is limited to the capital originally invested.
This states:
a.
b.
c.
d.
e.
2. Articles of Association
The articles of association, defines the responsibilities of the directors, the kind of
business to be undertaken, and the means by which the shareholders exert control over
the board of directors. This consists of the rules and regulations governing the conduct of
the companys business and the internal management of the company. The Articles of
Association is a document that contains the purpose of the company as well as the duties
and responsibilities of its members defined and recorded clearly.
The Article of Association contains the following details: 1. The powers of directors,
officers and the shareholders as to voting etc., 2. The mode and form in which the
business of the company is to be carried out. 3. The mode and form in which the changes
in the internal regulations can be made. 4. The rights, duties and powers of the company
as well as the members who are included in the Articles of Association.
3. Prospectus
A prospectus is only required by Public companies, that generally wish to
transact business by raising capital from the general public.For this purpose
of raising capital from the public, the company needs to prepare and issue a
prospectus. Public companies that are confident of raising capital on their
own need to prepare a document known asstatement in lieu of prospectus.
This indicates how the company will operate, its business plans, its stock offerings and an
application form.
4. Certificate of Incorporation
When the Registrar has approved the documents and the necessary fees paid, a Certificate
of Incorporation is issued. This is like a companys Birth Certificate as the Company is
now a legal entity and may now enter into contracts.
N.B. A Private Company can now commence trading but a Public Company will also require:
5.
This is issued by the Registrar when he receives a declaration from the directors that the
formalities concerned with the issuing of shares have been complied with.
Private Company
A company whose shareholders may not exceed 50 in number and whose shares may not be
offered for public subscription, .i.e. a company in which a small group of shareholders control all
of the shares. These shareholders tend to hold onto the company's stock and, in any case, no
shares are publicly traded. Privately held companies are, by their nature, impervious to hostile
takeovers and proxy wars. They tend to be more stable than other companies because their share
prices are not determined by (sometimes irrational) investment decisions, but by the value of the
company itself. However, privately held companies do not have access to as much working
capital as corporations with more shareholders have.
Types of shares
A company may have many different types of shares that come with different conditions and rights.
There are Three main types of shares:
Ordinary shares are standard shares with no special rights or restrictions. They have the potential
to give the highest financial gains, but also have the highest risk. Ordinary shareholders are the last to
be paid if the company is wound up.
Preference shares typically carry a right that gives the holder preferential treatment when annual
dividends are distributed to shareholders. Shares in this category receive a fixed dividend, which means
that a shareholder would not benefit from an increase in the business' profits. However, usually they
have rights to their dividend ahead of ordinary shareholders if the business is in trouble. Also, where a
business is wound up, they are likely to be repaid the par or nominal value of shares ahead of ordinary
shareholders.
Cumulative preference shares give holders the right that, if a dividend cannot be paid one year, it
will be carried forward to successive years. Dividends on cumulative preference shares must be paid,
despite the earning levels of the business, provided the company has distributable profits.
Preference shares
Preference shares (prefs) are legally shares, but they are very different from ordinary shares.:
Dividends are fixed like bond coupons, although there are usually provisions to not
pay, or delay payments.
In the case of cumulative prefs, if the dividend is not paid in full, the unpaid amount
is added to the next dividend due.
Preference dividends are fixed, so they do not participate in increases (or decreases)
in profits as ordinary shareholders do.
Definition of 'Debenture'
Worker Co-operatives
Businesses owned by people who work in them. Control is democratic: one
person, one vote.
Housing co-operatives
Housing controlled by the people who live there. People living in the
premises jointly own and control the co-op, this in turn controls and manages
the premises. Members are at one and the same time landlord, manager and
tenant.
Marketing Co-operatives
Members can be individuals or businesses getting together for mutual
benefit to do contract delivery, joint marketing, bulk buying or to share
premises. E.g. farmers and fishermens cooperatives.
Credit unions
Financial co-operatives which bring people together to save, borrow at low
cost rates, and manage their finances.
Franchise
A franchise is a right granted to an individual or group to market a
company's goods or services within a certain territory or location. The
Franchising Service Sector in CARICOM is dominated by petrol stations, fast
food/quick service restaurants, lodging/accommodation, and Business
Services. Names such as Shell; Texaco; KFC; Hilton; Marriot; TGIF; Ace
Hardware; Coca-Cola and Pepsi are virtually household names in most of the
Member States.
An individual who purchases and runs a franchise is called a "franchisee."
The franchisee purchases a franchise from the "franchisor." The franchisee
must follow certain rules and guidelines already established by the
franchisor, and in most cases the franchisee must pay an ongoing franchise
royalty fee, as well as an up-front, one-time franchise fee to the franchisor
Advantages
You can use a recognized brand name and trademarks. You benefit
from any advertising or promotion by the owner of the franchise - the
'franchisor'.
You can benefit from communicating and sharing ideas with, and
receiving support from, other franchisees in the network.
Relationships with suppliers have already been established.
Disadvantages
Costs may be higher than you expect. As well as the initial costs of
buying the franchise, you pay continuing management service fees and
you may have to agree to buy products from the franchisor.
You may find it difficult to sell your franchise - you can only sell it to
someone approved by the franchisor.
Mergers/Acquisitions/Takeovers
Mergers, acquisitions and takeovers are actions taken by a corporate
organization to purchase most or all of the shares of another corporate
organization. Mergers occur as part of a corporate organizations strategy for
expansion as a means of enhancing its growth and development. An
organization that wishes to expand its operation may find it more beneficial to
Business Organizations
A business is a firm or entity that is usually legally constituted to provide
goods and /or services to consumers.
Reasons for establishing a business
1. +To achieve financial independence
2. To obtain power (influence and status)
3. To make a profit
4. To gain personal freedom (flexibility)
5. To lay the foundation for a family legacy
6. To respond to changes in personal situation.
7. To put creative ideas into operation
PRINCIPLES OF BUSINESS
GLEANER CXC STUDY GUIDE SERIES
FUNCTIONS OF MANAGEMENT
Management
The term management describes all activities involved in the acquisition and
organisation of resources (people, finance, equipments and materials), that
are needed by any group within society, in order to achieve its objectives. All
organisations - commercial enterprises, schools, hospitals, the armed forces,
civic service, and charities, need to acquire and manage resources in order
to achieve their objectives. It is often the quality of its management that
determines whether or not an organisation will be successful and realize the
objectives it has set for itself.
(c) The organisation has to have a collective way in dealings with its
employees, its shareholders, its customers, the public and other
organisations.
Management effectiveness
Management effectiveness relates to the firm's ability to serve the needs of
its various stakeholders. it involves doing the right things at the right time.
(a) Shareholders expect a reasonable return on their investment.
(b)Workers expect to be employed and to receive fair wages.
(c) Customers expect suitable products and services at appropriate prices.
(d)Suppliers expect to be paid.
Functions of Management
The major functions of management include the following.
(a)
Planning
(b)
Organizing
(c)
Co-ordinating
This is the task of harmonizing the activities of individuals and groups within
the organisation. It involves ensuring that people, finance and physical
resources are in the right place at the right time and in the right quantities.
(d)
Directing
This involves giving directions to subordinates to carry out tasks over which
the manager has authority for decisions, and responsibility for performance.
The activity of issuing
directions, explaining and motivating people to work to achieve the
objectives of the business are important elements in this management
function.
(e)
Control
This is the task of measuring the activities of individual and groups to ensure
that their performance is in accordance with plans. Deviations from plans are
Styles of leadership
There are four different styles of leadership
(a)
Autocratic
The autocratic leader makes decisions and announces them. He sets his own
objectives, allocates tasks and insists on obedience. As a result in an
organisation, subordinates become very dependent upon their manager.
They do not have the necessary information to make their own decisions.
Being so dependent, there is little cohesion in the train the manager controls,
and output, although it can be high under supervision may not be of good
quality.
This type of management can frequently lead to dissatisfaction. On the
other hand autocratic leadership can be essential in certain situations. The
discipline imposed on armed forces is just one such example.
(b)
Democratic
(c)
Laissez-Faire
(d)
Charismatic
Trade unions are associations of workers formed for the purpose of improving
the pay and working conditions of their members. These include achieving
better working conditions for workers as well as protection from unfair
dismissal, the right for compensation for injuries suffered on the job, the
right to redundancy pay and representing workers in wage negotiation.
The motto of the trade union is In Unity there is Strength
Collective Bargaining is the process of negotiation between employers and a
group of employees rather than a group of employees aimed at reaching an
agreement that regulates pay and working conditions.
The collective arguments reached by these negotiations between employers
and employees usually set out wage scales, working hours, training of staff,
health and safety conditions overtime and the right to participate in
workplace or company affairs.
Claims for higher wages
1. Trade unions will base their claims for higher wages on one increase in
the cost of lving.
2. An increase in productivity
3. Increase in profits
4. Comparability- A pay rise to one group of workers will probably lead to
demands for pay increases by other groups of workers
Ways in which trade unions seek to improve conditions of workers