Sunday, 25 February 2018

Types of Demand - Micro Economics

Following are some of the different forms of Demand-

1. Joint Demand - This refers to a kind of demand where products are demanded jointly. For example, Inkpen and ink, car and petrol etc. Such products are demanded jointly. For example, there won't be any demand for ink if ink-pen is not there and vice versa

2. Competitive Demand - This refers to demand of products which are close substitutes of each other. For example, tea and coffee.

3. Derived Demand or Indirect Demand - When the demand of a product is derived from the demand of any other product, such a demand is called derived demand. For example, cement. Cement is demanded not for direct consumption but is demanded as there is demand for housing. Thus cement derives its demand from demand of housing

4. Direct Demand - This refers to demand of products which are directly consumed by people. For example, all consumer electronics. The demand of these products does not depend on the demand of any other product. These products are directly consumed by people. For example, the demand of a washing machine does not depend on the demand of any other product. The washing machine is consumed (used) directly by the people.

5. Composite Demand - This refers to the demand of the products which have multiple uses. For example, electricity, milk etc. These products have multiple usages and can be used for a variety of purposes. For example, electricity is used to run TVs, washing machines, computers, music systems etc.

Wednesday, 21 February 2018

Qualities of a Good Entrepreneur

The personality of the entrepreneur plays a very important role in the success of a business. He is like the captain of the ship. He is one of the four factors of production namely, land, labor, capital and enterprise(entrepreneur)
Following are some of the qualities of a good entrepreneur-

1. Risk Taker- They say  "Fortune favors the brave". The entrepreneur is the true risk bearer of any business. Risk taking is the most important quality of a good entrepreneur. He should be able to take calculated risks. A completely risk-averse person cannot make a successful entrepreneur. Risk taking is the most important function of an entrepreneur. However, he should also not be too adventurous. There have been instances in the where global giants became bankrupt due to excessive risk-taking.

2. Innovator- In today's highly competitive business environment, it is only the innovators who survive and succeed. With the removal of restrictions on international trade, the companies all over the world compete against each other. Continuous innovation is the only road to success in the global economy.

3. Quick Decision Maker- The entrepreneur also should be a quick decision maker. Taking too much time in decision making can lead to loss of good business opportunities which could be costly in today's highly competitive business environment

4. Leader- An entrepreneur also needs to have good leadership skills. He has to lead his team from the front. He should have good listening skills. At the same time, he should be able to make his own decisions. He should be able to provide a sense of direction to his employees. He should be open to suggestions of his employees. He should be capable to keep his employees motivated as employees are the most important asset in today's business. Only the companies with highly motivated employees can succeed in the long run. “Take Care Of Your Employees And They’ll Take Care Of Your Business,” Says Richard Branson, Founder of The Virgin Group

5. Coordinator: Its the job of an entrepreneur to maintain a proper coordination between other factors of production, namely land, labor, and capital. He needs to maintain proper coordination among his team members so that they all can work together for the achievement of a common goal (the goal of the business). A successful business is all about teamwork as business is a team activity. Without proper coordination between various departments, the business cannot succeed

6. Planner - Planning is also a very important function of an entrepreneur. A company without planning is like a ship without a direction. Big businesses cannot operate without proper planning

7. Foresight- An Entrepreneur has to be a person with foresight. He should be able to see what's coming up in his industry. He should be able to spot likely future changes in his business and the economy, such as upcoming technologies, upcoming products etc. He should be pro-active rather than reactive. Otherwise, he may lose first-mover advantage (advantage of being the first company to enter a new product line, new business opportunity etc.

8. Knowledgeable- An entrepreneur cannot be ignorant about his business or the economy. Having a good knowledge base is always an asset, It helps his business to be one step ahead of the competition always. He should have complete knowledge about the business environment in which he operates his business like laws pertaining to his business, best business practices etc.

9. Flexibility- An entrepreneur has to be flexible by nature. If a plan doesn't work he should be flexible enough to make necessary changes to his plan or to follow an alternative plan

10. Good Communicator and Assertive- It is important for an entrepreneur to be a good communicator. Then only he can communicate his vision to employees clearly. An entrepreneur has to spend a lot of time communicating with various stakeholders of the business like the government, suppliers, customers, creditors etc. Hence an entrepreneur needs to have good communication skills. He should also be assertive in his communications and should know when and how to say "No"

Thursday, 8 February 2018

Basic Accounting Terms - 3

Debtors- Debtors refer to people who owe money to the firm on account of goods sold to them on credit. In other words, debtors are customers or purchasers who have purchased the goods from the firm on credit. However, this does not include loans and advances granted by the firm to someone. 

Creditors - A person to whom the firm owes money due to the purchase of goods on credit from them is called as a creditor. So, creditors are the suppliers from whom business may have purchased the goods on credit. The term Creditors does not include any loans and advances taken or availed by the firm. If the business or the firm has taken some loan from the bank, then the bank would not be considered as a creditor of the firm. 

Net Profit/Income - It means an excess of revenues over expenses. The whole of net profit belongs to the owner/s of the business. It is a return for the owner on capital invested in the business and the risk borne by him. 

Net Loss - It is opposite of net profit. Net Loss is an excess of expenses over revenues. 

Drawings - It refers to money or the value of goods which the owner has withdrawn from the business for his personal use. For example, cash withdrawn by the owner from the business for his personal expenses is drawings. 

Transactions - Transaction involves an exchange of goods or services for money or money's worth. For example, purchase of goods, the sale of goods etc. 

Entry - It means the recording of a business transaction in the books of accounts. 

Voucher - It refers to the document which serves as an evidence or the proof of a business transaction. It is a supporting document for making an entry in the books of accounts. 

Discounts - Discounts are of two types - 
(a) Trade Discount. Trade discount means the discount given to the customer/purchaser on the printed price of the product. For example, if the printed price of a particular product is Rs.10,000/- and it is sold for Rs. 8,000/- by the firm, then Rs.2000/- is considered as a trade discount. 
(b) Cash Discount - It means discount offered to someone for making a prompt payment or payment before the date on which the amount is due. It acts as an incentive for the customers/purchasers of the firm to make early payments to the firm

Thursday, 7 December 2017

Differences between a Central Bank and a Commercial Bank

Distinguish between a Central Bank and a Commercial Bank-

1. A Central bank is an apex institution in the banking structure of an economy. It is the topmost bank in the banking system of a country. It is a regulatory body of the banking system. It lays down rules and regulations to be followed by other banks in the country. No one can start a bank in the country without the license of the central bank of the country. Commercial banks, on the other hand, are the banks which run the banking business to make profits. All the commercial banks have to follow the rules and regulations laid down by the central bank of the country.

2. The main objective of the central bank is to promote social welfare, whereas the main objective of a commercial bank is to make profits.

3. The Central Bank of a country is owned by its government. Commercial banks may be owned privately or by the government

4. The Central Bank has a monopoly on issuing currency notes. Commercial banks do not have any such right

5. Central Bank is a banker to the government. It is also a banker of commercial banks. It is called a bank of bankers. However, a central bank does not deal with the general public directly. A commercial bank, on the other hand, is a banker only to the public. Commercial bank deals directly with the general public.

6. There can be only one Central Bank in a country. For example, Reserve Bank of India, Bank of Japan, Federal Reserve Bank (USA) etc. However, it may have a few branches across the country. Usually, there are many commercial banks in the country with a lot of branches spread over the length and breadth of a country. For example, ICICI Bank, State Bank of India etc.

Saturday, 18 November 2017

Henry Fayol's 14 Principles of Management

Who was Henry Fayol?

Henry Fayol was a French mining engineer. After a lot of research and studies, he had developed 14 principles of management. Due to his contribution to management studies, he is also called as a father of modern management. So let's see what are those principles of management defined by Henri Fayol

1. The Principle of Division of Work - According to Henri Fayol the total work of an organization should be divided into smaller parts and these parts should be assigned to various employees based on their skill sets. So a person who is good at sales should be given a sales job. Similarly, someone who is good at operations should be placed in operations department and someone who is good in finance must be placed in the finance department. Division of work leads to specialization. When one person performs the same task, again and again, he specializes in the performance of that task. If a person keeps on doing the same task again and again over a period of time he will be able to do it faster and better.

2. The Principle of Authority and Responsibility -  What this principle says is that whenever you assign a responsibility to a particular employee he should also be given the required authority. Unless he is given the required authority, he won't be able to perform the task which has been assigned to him. For example, if you have assigned a task of producing 10000 units of a product X to a factory manager then he should be given sufficient authority to order the raw materials required for making 10000 units of that particular product X. He should also be given authority to hire the required number of workers to achieve the target of production. With Authority also comes the responsibility. It means that when you give authority to someone it is his responsibility to complete the task assigned to him. For example, if you have given all the required authorities to factory manager to produce ten thousand units of a product X then if he cannot achieve the target he should be held responsible for the same. So with authority comes the responsibility. You can't have a scenario where there is an authority but no responsibility. An authority will always be accompanied by the corresponding responsibility

3. The Principle of Discipline - According to Henry Fayol, discipline is one of the most important aspects of any organization. Maintaining proper discipline within the organization is the responsibility of Management. If there is no discipline within the organization, then the organization cannot achieve its goals.

4. The Principle of Unity of Command - This principle states that every employee should receive orders from only one person. This is because if he is receiving orders from more than one person, it will lead to confusion and he will not be able to perform his task properly. This principle is applicable to employees at all levels right from top management to bottom.

5. The Principle of Unity of Direction - Principle of unity of direction deals with groups within the organization. The principle of unity of command is applicable to individual employees. So the previous principle talks about every individual employee of the organization, whereas this principle talks about groups within the organization. As per principle of unity of direction, each group in the organization should have the same objective. The group should be directed by only one person using one plan

6. The Principle of Remuneration -  According to this principle every employee in the organization should receive fair remuneration. The remuneration of the employees should be decided based on his skills, education, expertise, knowledge, and tenure with the organization. Principle of remuneration, says that when the employees are given a fair remuneration they work with enthusiasm and show more productivity which results in more output

7. The Principle of Subordination of Individual Interest to General interest - What this Principal says is that the interest of the organization is supreme. Individual interest is subordinate to the general interest or the interest of the company. So while taking the decisions the managers should always keep the organization's interest on the top. Individual interest should not come in the way of interest of the organization. The interest of the organization is more important as compared to the individual interest. While making the decisions managers have to realize that organization's interest is more important than the personal interest of any employee (including himself).

8. The Principle of Centralization - This principle refers to the concentration of decision making power or authority in the hands of a few people in the organization. In certain organizations, there is a high concentration of power or authority in the hands of a few people. In such organizations, only a few people control the organization and make decisions. This is especially true in case of the smaller organizations. However, the large organizations cannot have the concentration of power in the hands of a few employees. In such big organizations, the power is generally divided among different groups or different managers. This is called as decentralization of power. According to Henry Fayol, there should be a proper balance between centralization and decentralization of powers depending upon the size of the organization and the nature of business the company does. There should not be complete centralization of powers, nor there should be complete decentralization of powers. There should be a balance between the two. Decision-making power should not be given to very few people at the same time it is important that decision making power is not given to every Tom, Dick, and Harry. People to whom the decision making power is given should be responsible and mature enough to make good decisions. Otherwise, they may give self-interest more importance than the interest of the organization

9. The Principle of Scalar Chain- In any organization, usually the communication flows from top to bottom or from bottom to top. Such communications happen in a very proper manner. They generally happen in the form of a chain. So if a manager wants to convey a certain message to everybody till the level of workers, he will pass on this information to the departmental head who in turn will pass it on to the supervisor, the supervisor will pass on the information to the foreman and the foreman will inform the workers. Thus, you can see that the information is passed on in the form of a chain. This is called as Scalar Chain. Similarly, if there is any information which workers want to pass on to the manager, the process happens exactly in a reverse manner. The workers will pass on the information to the foreman, the foreman will pass on the information to the supervisor, the supervisor will pass on that information to the departmental head who will then pass on the information to the manager. However, this principle of Scalar Chain should have some flexibility because it is very time-consuming. Sometimes you may not have enough time to pass on the information in this form. So if there is some urgent information which is to be passed on, then the cross-communication should be allowed. Cross communication means the communication that doesn't happen exactly in the form of Scalar Chain. So in case, there is an urgent message, then one may not follow the scalar chain. However, if someone is not following the Scalar Chain, he/she must do it with permission of the proper authorities

10. The Principle of Order- As per this principle, there must be a place for everything and everything must be in its place. You cannot have a mess in the office or in the factory. There should be a place for everything. So there should be a proper place where you keep your files, there should be a proper place where you keep your stationary, there must be a fixed place where you can keep your raw materials, there should be a  proper place where you would keep your finished goods etc. Thus, there should be a place for everything. At the same time, everything must be in its place. So, if you have allocated on a particular area to keep the files, then the files should be kept in that area only. Similarly, if you have assigned a particular area for keeping your finished goods, then all the finished goods should be kept at that particular place only.

Wednesday, 8 November 2017

Basic Accounting Terms - 2

Basic Accounting Terminologies-

Purchases - Purchases refer to the total amount of goods purchased by the firm. It includes goods purchased by cash as well as goods purchased on credit. However, purchases do not include the purchase of assets. For example, purchase of machinery will not be included in purchases. In case of a manufacturing firm purchases would include raw materials purchased for further production. In case of a trading firm purchases would include the goods purchased for resale.

Purchase return - Purchase return refers to the total amount of goods returned by the firm out of the goods purchased by it.

Sales - Sales refer to the total amount of goods sold by the firm. It includes goods sold by cash as well as goods sold on credit. However, this does not include the sale of assets.

Sales return - Sales return refers to the total amount of goods returned back to the firm by the customers out of the goods sold by the firm

Stock - Stock refers to the amount of goods lying unsold as on a particular date. The stock is always valued at cost price or market price whichever is lower.

Opening stock - Opening stock refers to the amount of unsold goods (stock) at the beginning of a financial year.

Closing Stock - Closing stock refers to the amount of unsold goods (stock) at the end of the financial year.

Revenue - Revenue refers to receipts of the firm. For example, receipts from the sale of goods, rent income, dividends etc.

Expense - It refers to cost or sacrifice incurred by the firm to earn the revenues. For example purchases, salaries to employees, purchase of stationery etc.

Thursday, 26 October 2017

Basic Accounting Terms - 1

Accounting terminology-

Capital: Capital means an amount invested by the owner in the business. Investment by the owner can be in the form of cash or in kind. For example, if the owner uses personal furniture for the business it will be recognized as the capital

Liability: Liability is something which the business owes to any outsider. For example, loan from a bank

Current liabilities: Current liabilities are the liabilities which the business has to pay within a year. These are short-term liabilities. For example, trade creditors. Trade Creditors are the suppliers from whom we purchase the goods on credit. Usually, the payment to trade creditors is made within one year

Contingent Liability: Contingent Liability is that kind of a liability which is non-existent as on date, but it may become an actual liability in future. For example, if a customer has filed a suit against the company for some compensation. This can become an actual liability in future if the firm loses the case. However, as on date it is not a liability as the outcome is not known today

Asset: Asset means something with the business owns. For example, plant and machinery.

Fixed Assets: Fixed assets are long-term assets. These are assets which are purchased for use over a long period of time (Generally more than one year).  For example, land and building

Current Assets: These are short-term assets. Current assets are assets which are expected to be converted to cash within a year. For example, Debtors. Debtors are the customers to whom we have sold the goods on credit. Generally, the amount receivable from debtors is received within a year's time.

Liquid Assets: Liquid assets include cash and all other assets which can be converted into cash at a very short notice. These are the assets which can be disposed of quickly. They are also called as quick assets. For example, cash in hand, cash at bank, shares etc.

Tangible Assets: These are assets which have physical existence. We can touch, see or feel these assets. For example, plant and machinery

Intangible assets: These are the assets which do not have any physical existence. It is not possible to see, touch or feel them. For example, Goodwill (Goodwill is the reputation of the firm expressed in terms of money)