1st Year Principles of Commerce Notes Ch# 11

Finance

Introduction

It is necessary for a businessman to plan financial aspect in the early stage of starting any new business and it should not be left to chance. From the starting and to any later expansion in the firm’s business, finance plays a very important role in purchasing aspects and to meet the expenses if necessary for carrying on the business affairs. The financial needs of business are assessed by the size and the nature of work. For a large business, financial needs are high as compared to a small business. For example, the joint stock companies require large amount of funds whereas sole proprietorship and the partnership business require small amount of funds. Finance can be obtained through two major resources owners’ capital and borrowed money. The requirements of funds depend upon utilization that is how much funds will be needed for circulating and fixed capital. The capital credit obtained from any financial institution is known as borrowed money. Funds which are required to purchase any asset and to meet the expenses from the initial stages to the extension of any business is known as finance.


Kinds of Finance

Long Term Finance

Long term finance is that part of capital which is required by a business enterprise to finance its blocked or fixed assets such as land buildings, machinery and other appliances of permanent nature. In the established undertakings, it is required for extending the scale production and for the renewal and replacement of the fixed assets, or for taking the advantages of new discoveries. Thus, it is needed for considerable period of time, usually for 10 or more years and hence it involves a high cost due to higher amount of interest.

SOURCES OF LONG TERM FINANCE:

The following are the various sources of obtaining long term finance.

1. SHARES:

The initial capital is obtained by a new concern by floating shares. Shares represent equal portion into which the capital of a company is divided. Shares may be issued directly by the company or through the under writers. Selling of shares is the most important method of securing fixed capital and the contributors are the general public.


2. BONDS AND DEBENTURES:

To raise sufficient capital and to draw the attraction of those people who don’t find interest in investment, debentures are issued b y a company. Debenture is a promissory note for the repayment of money borrowed and the payment of interest at fixed rates. The contributor is again the general public.


3. GOVERNMENT LOANS:

The state aid in the form of guarantee of dividend of new companies, taking of securities, plays a definite role in the financing of industries. In our country, industrial-finance Corporation was established to give long term loans.


4. FINANCING INSTITUTIONS:

In Pakistan there are the following institutions from which different industries can take their finance for long periods:

A- PICIC:

This corporation aims at stimulating promotion of new industries, the expansion of the existing ones and the furnishing of the technical know-how as to increase production.

B- IDBP:

This bank was setup to provide credit and other facilities for the development of industries. Other institutions are NDFC, BEL, investment trusts, insurance companies and commercial banks.


5. PUBLIC DEPOSITS:

An enterprise can raise finance by the acceptance of deposits from the public directly for fixed terms and at fixed rate of interest. This method is however, dangerous and has declined in importance in recent years.


6. PLOUGHING BANK OF EARNINGS:

This is very easy method of financing and is available to only Established enterprises.re-investment of a part of the profits is an ideal means of financing, expansion and improvements.


Short Term Finance

A common problem of every business is financing day –to –day operations. Normally business finances these items out of the receipts from sales, but some times the firms financing is needed. It is required for pour hasting raw materials, additional inventory etc. for meeting purposes’ .it is required for short period ,generally foe one year .it is needs because of the fact that the stock is to kept ready before it is actually consumed.

Sources of Short Term Finance

The main sources of obtaining short–term loans are as following:


1. Commercial Banks

Finances are acquired from banks by means of loans, discounts overdrafts etc. they provide short term finance in the shape of discounting bills, granting loans and accepting bills on behalf of their customers.


2. Commercial Credit Houses

These institutions provide short term finance against mortgage of property or promissory notes.


3.Proprietor‘s Personals Funds

This is an important source of financing a small business. The proprietors themselves supply the capital of the business from their own pockets. But in large scale undertakings, this source is insufficient.


4. Borrowings from Friends and Relatives

Sometimes business is also finance by taking loans from friends and relatives. Finance from this source is very limited and uncertain.


5. Public Deposits

Some units accept deposits from the public from short period on attractive rates of interest and utilize the funds for their currents financial requirements.


6. Indigenous Bankers

There are large number of money lenders i.e. Mahajan, Sahukar, Shroff in the country who provide considerable sums for the business, though at a high rate of interest.


7. Land Mortgagment

The financial institutions give loans on short–terms to he business man or industrialists on the security of land and bearable.


Foreign Exchange Banks

These banks also provide short term funds. They mainly provide finance to the foreign business undertaking of their nationality.


9. Unsecured Loans

This type of financing includes:

A) Promissory Notes:

They are the legal instruments used in advancing banks loans. It is the major source of the short–term finance.

b) Commercial Drafts:

A draft is an instruments made by one person ordering the second person to pay a sun of money to a specified individual on sight or at a future date. Secured loans: There are times when short term financing may be accompanied by collaterals, which gives the lender the right to seize certain property if the borrower does not replay the loan.


10. Secured Loans

There are times when short term financing may be accompanied by collaterals, which gives the lender the right to seize certain property if the borrower does not repay the load.

1st Year Principles of Commerce Notes Ch# 10

Filing

Introduction

A system of arranging o r preserving documents received and copies of letters issued in a proper way is known as filing system. Such a preservation of all the letters and documents enables the businessman to have ready reference as and when needed. Business concerned, big or small, carry correspondence wit a number of customers or clients. Such correspondence forms a permanents record of what has happened between the businessman and the customer. Reference of the previous correspondence is to be made for carrying any business activity and also forming new policies to make a business a successful one. There fore a copy of incoming and outgoing letters is to be preserved and arranged in a systematic way so that they may be easily available with out any lose of time. This whole process is known as Filling.


Essentials of A Good Filing System

For an efficient filling system it is necessary to have the following qualities:


1. Simplicity

The filling system should be quite easy and simple so that every one in the office and use it with out any technical knowledge. It would be so simple that even an inexperienced employee can use it.


2.Safety

The preservation of the letters is the foremost object of filling system. The letter should be kept in a lock or other device to prevent unauthorized persons to approach the correspondence


3. Elasticity

With the development of business some times it becomes necessary to alter the filling system. Therefore it is essential that filling system should be elastic


4.Minimum space

The space occupied by a filling system should be as small as possible


5.Cheapness and Economy

To avoid any financial pressure the system of filling should be cheap and economical in proportion to the size of business.


6.Rapidity of Reference

Filling of letters should be easy in order to trace the required letter with out any loss of time


7.Suitability

Again the system of filling must suit the requirements of the business in connection with which it is used.The requirements of each business house vary according to the nature and extent of its business and the actual system of filling best suited to it varies accordingly.


8.Rapidity of Filling

The system should be such that the papers could be filled rapidly with out any loss o time


9.Accessibility

The records should be kept in a place and in a manner easily accessible to all. otherwise there is bound to be a waste of time in making references.

Various Systems of Filling Letters

I. Wire Filling

2. Pigeon Hole Filling System

3. Flat or Horizontal Filling System

4. Vertical or Upright Filling System


I. Wire Filling

In this system of filling a hard and thick steel wire is used. The wire is fixed on a small round wooden base and has a sharp point. in this thick wire all the letters are pushed and the wire is hung. it is usually used in small business houses.


II.Pigeon Hole Filling System


This system requires a wooden almirah containing 24 compartments like pigeon holes. There is usually a shutter in the front of the almirah to protect the letters. each compartment is labeled with one letter of alphabet. the last compartment bears the label of X,Y and Z. this is very old system of filling letters.


III. Flat or Horizontal Filling System


In this system in an iron almirah, the card board files are flatly, or horizontally kept in a number of holes duly alpha bated . this is a very popular and scientific system of filling letters. this system is a great advancement over pigeon hole system. It is known as flat filling system because of the fact that the letters filled under it are kept in a flat position files are specially designed for use in this system and their different makes are available in the market. The available files can be grouped into the following classes


1.The Cardboard File

It is a primitive form of filling. under this system either the cardboard covers or drawers of specially made cabinets are used, as files .the letters are put upon the cardboard and fastened with the help of a clip.


2.The Box File

This is also not in much use. Here wooden boxes are used as files .the letters are kept flat inside the box in an alphabetic or numerical order. It is used in very small business houses .


3.The Arch Files

This is the most popular form of flat files. A businessman generally keeps a number of flat files according to the volume of correspondence and the system and the system of classification he adopts. If the volume is small , one file may be sufficient ,but if it is large one file may be used for containing the correspondence of a single individual and there will be as many files as correspondents . the letters are arranged date wise. these files may be kept just like books or hung on the walls, or they may be kept in shape of drawers fitted in a cabinet.


4.The Shannon Files

The Shannon file is the best known system of flat filling .this form consists of a filling cabinet containing many compartments in accordance with the requirements of the business .each drawers contains index sheets below which the letters are filled.


SPECIAL FEATURES OF A HORIZONTAL FILLING SYSTEM

Whatever the make of the flat files, they possess the following special features which should be carefully noted

1. The files keep the letters in a flat position and contain a device for fastening the letter s

2. Each file consist of alphabetical index cards which are made of loose stiff sheets .

3. The letter are placed date wise, with the latest letter date on the top.

4 All the letters contained in the file are carefully fattened together.

5 The file may be hang on the wall , or kept in the shape of the drawer in a cabinet or made to stand like a book.

6 When a file is full , the letter are removed to be transferred in binding cases.


ADVANTAGES OF HORIZONTAL FILLING SYSTEM:

1 The letter filed cannot get out of order or cannot be misplaced or lost as they are fixed on the arches.

2 If at any time , the letter of a particular correspondent is to be removed , it can be done without disturbing the order of other letters.

3 A file drawer may be dropped accidently, but there is no fear of mixing the letters.

DISADVANTAGES OF A HORIZONTAL FILLING SYSTEM :

1 Since the letters are fastened together , inconvenience is felt filling or taking out a letter.

2 The relative slowness is getting access to the letters as they have to be re-shuffled and turned forward and backward to find the required letter is inconvenient.

3 It is absolutely necessary to punch the papers , which makes the system time consuming.

4 Trouble is involved in re –organizing the cabinet to maintain an increasing volume of correspondence.


IV. VERTICAL OR UPRIGHT FILLING SYSTEM

A still further advancement the art of filling letters is the vertical filling system . It is the most leading method of filling suited to a large concern having innumerable correspondence . The system is called vertical because the letters are kept in a vertical position . It requires a cabinet with deep drawers , folders and guide cards . In this system the letters remain unfastened.


WORKING OF THE VERTICAL SYSTEM:

The following are the things which are needed for the proper maintenance of the vertical filling system.


1.FILLING CABINET:

This cabinet contains drawers which are made of wood or steel . The requirement of drawer depends upon the volume of correspondence and nature of the business. Cabinets with locks also provide safety.


2. FOLDER:

A folder is made of strong paper and is folded in the middle so that the letters can be easily arranged in it. They are usually placed date wise. On the projection edge of the folder is written the correspondent’s name, subject etc.


3. GUIDE CARDS:

Small groups are made in each drawer by sheets having in a tab. These tabs are marked alphabetically, geographically or numerically. The folder are kept behind them according to the mark on the tab.


4. ARRANGEMENT OF THE FOLDERS IN THE DRAWERS:

The folders containing the correspondence are arranged in the drawers either alphabetically, geographically or numerically. The most common is the numerical arrangement , but sometimes alphabetical arrangement is also preferred thus they may be arranged in the following order:-

a. NUMERICAL ARRANGEMENT:

Each folder is giving a certain number which is put down on the raised portion of its back. If a folder holds the letter of the single correspondents then all the papers will also carry the same number as that of the folder. If a folder contains documents related to more than one correspondents then the decimal system will be applied e.g if the folder carries a no. 53 then the correspondents will be numbered as 53-1, 53-2 etc. folders are bearing numbers like 10, 20, 50 and so on inserted in the proper places so that they indicate the position of the various folder of different numbers.

b. ALPHABETICAL ARRANGEMENT:

In this folder contains the name of the correspondents on the raised back portion and not the number. Each guide card indicate the initial letters of the correspondents e.g. the letters to and from Mubarak Ali, Mahmud Ahmed etc will be placed together and their position will be indicate by the guide card bearing the letter ‘M’. The folders are arranged one after the another according to the first vowel occurring in the correspondents name. t he advantage of this system is that it does not need a separate index but it posses the disadvantage of causing conclusion between the customers bearing same names.

c. GEOGRAPHICAL ARRANGEMENT:

This is merely a variation of either the alphabetical or numerical systems adopted geographically to meet the requirements of a particular business. One may allot each drawer for correspondence in each province, and guide cards may be put indicating each town. Traders having flourishing foreign trade and big merchants usually adopt this arrangements.

d. SUBJECT ARRANGEMENT:

Where the subjects are of more importance than the name of correspondents it is useful to file all papers behind alphabetically arranged subjects guides using tabbed folders for sub- divisions of the subject or individual correspondents.


5. ABSENT OR OUT GUIDES: These are cards with ruled columns. When a folder is removed for reference the filing clerk puts an out guide in its place and enters in the ruled columns the particulars of the folder removed.


ADVANTAGES OF THE VERTICAL FILING SYSTEM:


1. SPEED OF LOCATION: Speed of location is possible as the system combines admirably with the visible system of indexing. They can be traced out quickly without must effort.

2. CONVENIENCE AND CHEAPNESS: The vertical filing system has the advantages of handling a large volume of correspondence more conveniently and cheaply.

3. EASY REMOVAL OF DOCUMENTS: Access to the folders and to the documents is simple and that is why the removal of documents is easy.

4. FLEXIBILITY: This system is more adaptable in increasing the correspondence.

5. TIME SAVER: The papers need not be punched under this system, therefore it is a time in this respect.

6. NO FEAR OF MIXING: Since the correspondence of one individual is quite separate from others, therefore there is no fear of mixing up of the correspondence.


DISADVANTAGES OF VERTICAL FILING SYSTEM:

1. DANGER OF LOSING: Since the letter are left lose in the vertical system therefore, there is danger of losing them.

2. INSECURITY: This system has no security and in case a letter is dropped, it upsets the whole order.

3. LARGE SPACE: This system requires a large space as compared to the flat files.

1st Year Principles of Commerce Notes Ch# 09

Indexing

Introduction:

Index is simply a list arranged alphabetically showing the required reference. An index to file may be set out in the form of a bound or loose leaf book whereas a separate page or group of pages is allotted to every letter of the alphabet, the field no. being entered against each name. Thus indexing is a system through which the location of the records may be found easily. It may be placed near to the records or may be kept apart from the records or the records themselves may be so arranged as to be self indexing eg . 1 index of a book (apart from the records) and 2. Telephone directory (self- indexing).
Indexing Equipment

VERTICAL CARD INDEX:

There are number of card in it and each card deals with one item of the index. On the top edge of the card, reference heading is written. On the remaining part of the card, the location of the item is written, where the self- indexing system is in use, the remaining part of the card contains the record itself. These cards are arranged vertically in a drawer or tray in such a way that they can be used very conveniently for reference to make the function or finding the reference more easily, tabbed guide cards may be inserted at required intervals.


STRIP INDEX:

It is consisted of frame into which strips of shout paper or card can be fitted in any required order and subsequently withdrawn and rearranged whenever changes are to be made. Each strip is devoted on one item of not more than two or three lines. Frames can be made up in various forms to suit different purposes; they can be fixed to the wall made up in book form or where a large number is necessary arranged on a rotary stand which is easily turned to give reference to any desired portion of the index.


VISIBLE CARD INDEX:

This is an index which offers the ready visibility of the strip index and also the additional record space provided by the vertical card index. It consists of series of cards, arranged so as to overlap leaving a strip of each card exposed. This exposed edge is used for the reference heading, the remaining part of the card is readily available for record purpose. The trays in which these cards are kept are fitted with devices which enable the cards to be held in position and yet permit individual cards to be written upon withdrawn replaced or rearranged as may bar required. The trays of cards are usually kept in cabinet but as in the case of the strip index frames can be arranged in book form when they make an easily portable record.

VISIBLE BOOKS:

Overlapping visible index records can also be kept in book form. A viable book consist of a loose leaf binder in which paper pages are arranged in a similar formation the cards in visible card index.

WHEEL INDEX:

This is a form of vertical card index in which the cards are arranged about the circumference of wheel set in a cabinet or desk. Thousand of such cards can be attached to one wheel and as many as six wheels set up within the reach of one clerk seated at his desk.

STAGGED CARD INDEX:

This is an arrangement of the vertical card index which has been developed to give easier reference to headings. Cards are arranged in groups and overlapped so that the reference headings on the cutaway concern of a whole group can be seen at once. This system of indexing is sometimes applied to ledger cards to facilitate the extraction of accounts for posting.

SLOTTE CARDS:

The cards are punched with holes along one or more edge, each hole represents a classification or figure in code number. Written information is recorded by hand or typewriting in the centre of the card. The information in term of which it is required to deselected or sort can be recorded along the edge of card by cutting the appropriate holes into slots. Once they have been prepared the card may be filed in trays in any order. To select the card for a particular classification batch of several hundred cards is removed from the tray and a long needle is passed through the holes representing the class required. When the needle is lifted the cards which have been slotted at these holes fall out so separate themselves from the remainder.