Finance and Banking · Classes 9-10 · Chapter 1 · 1.1

Examples of Finance: Family, School, Grocery Shop and Company.

Your family's monthly accounts, school fees, the grocery shop on your street and a share of Square Pharmaceuticals: four places, one question. Where does the money come from, and where does it go? This note watches the answer change shape from one place to the next.

1. A family's finance

A family's income may come from a job, a business, farming or self-employment. On the other side sit daily shopping, house rent, school fees and the bills.

Spending has to match income and has to happen on time. If money runs short, the school fee falls due, and a fine may follow.

So what is finance for a family? Fixing the sources of fund and the way it will be used in advance, with a plan: that is the family's financial process.

A new television or refrigerator is an occasional expense. If regular income cannot cover it, a long term loan can meet the shortage, but then a plan to repay it is needed too.

2. The school, and whose goal is profit

A school is a social organization, and earning profit is not its main objective. Even so, it keeps a plan of income, expenditure and fund management.

Fund comes from students' tuition fees, examination fees and admission fees. It is spent on teachers' and staff salary, house rent, the electricity bill, renovation, and buying computers and furniture.

A tailoring shop is a profit making organization, while a family and a school are non-profit. This chapter mainly deals with the financing of profit making, or business, organizations. Sort all five yourself.

3. The grocery shop

A grocery shop's current expenditures are buying products, paying rent, the electricity bill and workers' wages. Large spending, such as expanding the business or buying a refrigerator, is a fixed expenditure. So a grocer has to invest in both kinds of assets, fixed and current.

When sales income is not enough to invest, a grocer turns to his own fund, friends and relatives, or buying on credit. For a large sum to buy fixed assets he usually goes to a commercial bank. A bank's long term loan can be repaid over a long schedule, so the risk of repayment is reduced a bit.

A grocer's business finance therefore means four jobs: meeting current expenses from sales, making some long term investments, collecting money from less risky sources, and repaying loan installments on time.

Now line up the income and spending of all three in one grid.

4. The company

Large organizations such as Square Pharmaceuticals, Bata Company and Kohinoor Chemicals are called companies. Their financial process is not as simple as a grocery or tailoring shop's; it is comparatively complex.

In collecting fund a large company gets more benefit than a small organization: it raises capital by selling shares in the share market. Its goodwill, its rate of profit and its customer service, or customer satisfaction, help push the share price up.

Put the money route of all four places on one sheet. Tap each one and watch how the route changes shape.

One thing to carry out of all four examples: business finance gives direction. It says which source to use, when and how much of it, to collect fund, and in which sectors, and how much, to invest so that profit grows.

5. Check yourself

Start with the first question.

The second is of the same kind.

Read the last one slowly.

The whole note on seven cards.

Source: Finance and Banking, Classes 9-10 (NCTB), Chapter 1 “Finance and Business Finance”, section 1.1.