Fundamentals of Commerce

1. Fundamentals of Commerce
By
Dr. G. Prabakaran
Assistant Professor of Commerce
A.V.C.College (Autonomous)
Mannampandal - 609305

2. By
Dr. G. Prabakaran
Asst. Prof. of Commerce
A.V.C.College (Autonomous)
Mannampandal - 609305

3. BUSINESS
In Dictionary means, “a state of being busy”.
Business refers to the production and selling of goods and services with the
objective of creating wealth.
Everyone of us is involved in various activities in our life. (i.e., Farmer in the field,
worker in a factory, professor in college, doctor in hospital, salesman in a shop,
etc.,). All humans activities are undertaken to satisfy the human needs.
COMMERCE: It consists of all activities which removes the hindrances to trade,
thus ensuring free flow of goods and services from the producers to the consumers.
It is a comprehensive term which includes trade and the activities such as
transportation, banking, warehousing, insurance, etc., which aid trade.
TRADE: It refers to the buying and selling of goods and services.

4. DEFINITIONS OF BUSINESS
H.Haney,” Business may be defined as a human activity directed towards
production or acquiring wealth through buying and selling of goods”.
McNoughton,” The term business means the exchange of goods, money or
services for mutual benefit”.
DEFINITION OF COMMERCE
James Stephenson, “Commerce is the sum total of all those processes, which
are engaged in the removal of hindrance of persons (trade), place (transport
and insurance) and time (warehousing) in the exchange (banking) of
commodities.”

5. COMPONENTS OF COMMERCE
1. Trade
2. Aids to trade
Trade means sale and purchased of goods. It can be further classified into
two categories like home trade and foreign trade. Home trade means when sale
and purchased of goods within boundaries of country. Foreign trade is a trade
between two or more than two countries. Home trade can also further classified
into two categories like wholesaler and retailer. Wholesaler means when goods
are purchased from producer in large quantity and are sold in small
quantity. Retailer means goods are purchased from wholesaler and are sold to
consumer in a very small quantity. Foreign trade is classified into three categories
like import, export, and Entrepot. Export means when goods are sold to foreign
countries. Import means when goods are purchased from foreign
countries. Entrepot means import of raw material for the purpose of re-exporting
after convert into finished products.

6. Aids to Trade
There are certain agency which facilitates trade is called aids to trade.
Transport
Warehousing
Insurance
Banking
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7. CHARACTERISTICS OF BUSINESS
1. Dealings in goods & Services:
Business deals with goods & Services. Goods can be classified
into two heads.
a. Consumer Goods – clothes, soaps, milks, shoes, etc. (essentials for
human beings)
b. Industrial goods – Machinery, equipment, etc., used for production.
It also deals with services such as transport, warehousing, banking, etc.
2. Production and/ or exchange: We can call an economic activity as
Business only when there is production, exchange, transfer, sale of goods
for value.
Goods produced for self-consumption, presentation as gift are not
business.
Business activity should involve two parties i.e., Buyer and Seller.
E.g., Cooking for personal consumption is not business, cooking made for
selling to others for a price. (Hotel, mess, canteen)

8. 3. Continuity & Regularity in dealings: A single transaction shall not be treated
as business, it undertakes continually. E.g., If Mr. A sells his house to Mr. B not
considered as business one time activity, Builders sells their flats regularly in
constructing and selling the flats.
4. Profit motive: Earning profit is the primary motive of business. If profit is not
the primary motive then the organisation is fall under the category of Non-profit
organisation. E.g., Colleges, Schools, hospitals, etc.

9. 5. Element of Risks: Every business, there is a possibility of incurring loss termed
as risk.
a. Known Risk: Losses due to fire, floods, theft, etc.
b. Unknown Risks: Changing technology, change in Govt. policies, fashions, etc.
6. Creation of Utilities: Business makes goods & services for the useful to satisfy
human wants. Man is able to satisfy his demands effectively and economically with
the help of business.

10. 7. Socio-economic activity: Business is primarily an economic function. It deals
with production and distribution of goods and services for the satisfaction of
human wants. However, business is a part of society and it reflects the aspirations,
values and beliefs of people.
8. Business must grow & expand: Business and stagnation do not go together.
Businesses must grow and expand to survive. E.g., Standard motors, Binny’s are
famous companies today no longer in market because of inefficient management.
On the other hand, companies such as Reliance, Infosys, Bharti Enterprises (Airtel),
Achi started with a small capital base today important players in the market.
TELCO small suppliers of locomotives to the Railway today major automobile
manufacturer (Trucks, buses, cars) rechristened as TATA MOTORS.

13. CLASSIFICATION OF INDUSTRIES
1. Genetic Industries
2. Extractive industries
3. Manufacturing industries
4. Construction industries
5. Service industries

14. GENETIC INDUSTRIES
In this type of industry is concerned with the breeding of
plants or animals which are used in reproduction. Ex. Poultry farms,
cattle breeding farms, fish hatcheries, etc.

15. EXTRACTIVE INDUSTRIES
This industry is concerned with the extraction of raw materials from
the soil, air and water. For e.g., Agriculture, forestry, mining, etc.

16. MANUFACTURING INDUSTRIES
This industry is engaged in the conversion of raw materials into semi-
finished goods or finished goods. E.g., Textiles, Cement, Automobiles, sugar, etc.

17. CONSTRUCTIVE INDUSTRY
This industry is concerned with the construction and erection. E.g.,
Construction of buildings, roads, dams, bridges and canals.

18. SERVICE INDUSTRIES
These are the industries which provide essential services to the
individuals, businesses and the society. For e.g., Banking, Insurance, Hospitality,
Health, warehousing, Transportation, Telecom, etc.