Professional Documents
Culture Documents
INTRODUCTION TO COMMERCE
▪ Commerce is trade and aids to trade or all activities that aids the distribution of goods and services
from the primary production to the consumer.
TRADE
▪ Trade is the buying and selling of goods and services with view of making profit. Trade is divided
into two categories, which is home and foreign trade.
▪ Home trade is trade done within a country and is divided into retail and wholesale trade, retail trade
is the selling of goods in small quantities while wholesaling is the selling of goods in bulk (large
quantities). The person who sells goods in large quantities is called the wholesaler.
▪ Foreign trade is trade done between two or more countries (outside) and is divided into imports and
exports. Exports are the goods going out of the country while imports are the goods coming into the
country. Aids to trade exist to help trade to function, if there was no trade there would be less reason
for the aids to trade to exist but commerce would still exist because it also assists primary and
secondary industry to function
Aids to Trade
Commercial activities are essential to those engaged in Secondary Industries such as a
Manufacturer of textiles in the following ways:
Advertising
- to obtain information on sources and suppliers/where to get goods for sale or the raw materials to
be used in the industry
- to persuade potential customers to buy goods and services available on the market
- increases the sales
- to advertise for workers/job vacancies/recruiting required staff
- to give information to customers
- it can be by television, radio, newspapers, electronic mail (e-mail), telegram, fax, magazines, posters
etc.
Banking
- is essential for depositing receipts from sales
- It facilitates payments, through credit transfer, standing orders, discounting bills of exchange,
cheques and direct debit .
- provides finance for the customers who are in need of more money through loans and overdrafts
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Communication
- is essential to contact suppliers of raw materials and customers
- and to settle queries or payments,
- allows customers to place orders
- organises survey to promote business activities
- allows all forms of business information to travel and finalise their transactions through telephone,
Electronic-mail, telex, fax, internet, letter, data post, cellular phone
Insurance
- is essential to provide security or cover (indemnify) or compensate
- against any financial losses of building, raw materials, finished goods, equipment from fire, damage
of goods in transit/theft
- to cover claims from third parties such as employers liability and public liability
Transport
- is necessary to delivery/carry raw materials and equipment to the industries
- moves employees to and fro work
- carries finished products to the market
- it can be by road, rail, sea, and air.
Warehousing
- is essential for the storage/keeping of raw materials awaiting procession
- and finished goods/products awaiting demand or orders from the customers as some goods are
seasonal such as Jerseys, raincoats
- It protect from adverse weather conditions and deterioration etc.
- It allows production to take place in anticipation of demand
- It evens out prices/avoids price fluctuations and helps to prevent shortages
- It protects the goods from adverse weather conditions
Production
The Meaning of Production
- Production covers all activities, which contributes to the satisfaction of the consumers’ demand for
goods and services or needs and wants or gives utilities can be defined as the provision of goods
and services to satisfy human needs and wants.
- This includes industry both primary (obtains raw materials from nature) and secondary
industries(processes raw material into finished products) ,
- Commerce is trade and aids to trade,
- Concerned with the distribution of goods from the producer to the consume
- and direct service, provides personal and public services to individual citizens
- such as education provided by the teachers, health care provided by nurses and doctors, legal
advice provided by the lawyers, security provided by police officers and entertainment provided
by the actors.
Wants
These are the things that we need in order to improve the quality or standard of our life or to live a more
meaningful, enjoyable and luxurious life. We can do without them. This includes a radio or a television to
provide us with news and entertainment, a car to move us to far places, a refrigerator to keep our drinks or
food cool, a cellular phone to contact or talk to our friends and relatives. We can not die without these things.
TYPES OF PRODUCTION
(a) Direct Production
- This is the production of goods for one’s own use
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STAGES OF PRODUCTION
Production whether direct or indirect can be placed into three stages. These are primary, secondary and
tertiary production.
(ii) Construction
This includes building of roads, bridges, houses and other construction work. This process uses both
products from the primary and secondary industries to assemble or build a house, bridge or dams. The
builder for example uses rocks extracted by quarrying, cement extracted by mining, timbers extracted by
forestry, steel, paint, roofing sheets, window glasses and nails obtained from manufacturing and many
others to build a house.
© Tertiary Production
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This is the third and last stage of production. It involves the provision of services that helps in the
transfer of finished goods from the factory to the consumer. There are two services involved. Firstly the
commercial services which involves storing of goods, transporting them, advertising them, insuring,
providing finance and selling them. Secondly, there are also direct services, which plays an indirect role.
For instance, the services of the doctor, policemen, nurses, doctor, musicians, actors, lawyers, architects and
sportsmen may appear to be remote from the process of production and distribution of goods, but they are
not. Doctors and nurses, for instance, make invaluable contribution to production, by making people health,
strong and ready to work, they indirectly aid production.
FACTORS OF PRODUCTION
Before the goods and services are produced, there must be capital, someone with the idea or the skill to
organise the business, land and labour. These are referred to as the factors of production.
Capital
- includes money, buildings, machinery, raw materials used to produce further goods
- and all man made assets used in the production of goods and services.
- Providers of capital are called capitalists/investors
- Capital can be accumulated by savings.
- The reward for capital is called interest.
Enterprise or organisation
- The ability to organise the other factors of production
- Enterprise involves making decisions
- Such as expansion of the business, ploughing back, buying a new motor vehicle
- For production to take place, someone must have the idea and the skill to organise, direct and
control the production process.
- This person/provider is known as the entrepreneur or organiser. He is responsible for deciding
what should be produced, how to produce it, where and when to produce it. This decision involves
risks and a special skill.
- The entrepreneur gets profit/loss as his/her reward.
Labour
- This is human effort or energy made/used in the production of goods and services.
- It can be manual(physical) and skilled(or mental) labour. Labour is limited in supply.
- Providers of labour are called workers
- workers receive/get a wage or salary as their reward for labour
Land
- includes all kinds of natural resources found on earth and underground
- Land refers to buildings, minerals underground, rocks of the crust, fish in the water, trees and all
other natural resources. It therefore, includes the earth and the oceans and everything which grows
in them.
- Providers of land are called landlords
- Landlords receive rates/rents/loyalties as their reward
Advantages of Specialisation
- workers become skilled
- workers become efficient
- it leads to increased output/high production (mass production)
- time is saved because workers do not have to move from one operation to another
- training is easy as jobs are easy to learn
- everyone’s ability is made use of
- development of specialist machinery to perform the specialised task becomes easier
- labour is potentially more mobile as it is often possible to employ people who do not need
any related qualification and the tasks are simple and easy to learn
Disadvantages/dangers of Specialisation
- work becomes boring
- individual skill and crafts are lost due to use of machinery
- creates unemployment as greater use of machinery leads to unemployment
- there is inability of slow workers to keep pace with others as the gap between management
and workers tend to be widened
- Products are all the same as the machine takes over, the goods are made in standard sizes
and the choice of goods available to the consumer becomes limited.
- workers become dependent on each other (in case of illness, production is disrupted)
- it is difficulty to find employment after loss of job due to limited skills
- discontent among workers may lead to low productivity
- Occupational hazard/there is a risk of contracting diseases, eg. Those in asbestos industry
risk contracting cancer.
HOME TRADE
RETAIL TRADE
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Retailing is the selling of goods in small quantities to suit the requirements of the consumers. A person who
sells the goods in small quantities is called the retailer.
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- Capital have you sufficient capital or the source of capital to meet the demands of the business
envisaged and to avoid daily cash flow problems
- advertising policy what advertising policy may be necessary
- prices or range of goods ,what prices or range of goods are suitable for the area in order to avoid
slow lines
- What quantity will be required to avoid overstocking
- prices or range of goods, what prices or range of goods is to be used
- Method of Sale, whether sales assistants will be required or whether some degree of self service may
be operated
- Whether to deal on the cash basis only or to give credit
- layout for the store, what would be the best form of layout for the store or the best way to display
the goods/equipment
- What make up will be required to make the required profit
- Opening and closing time must suit the customers
- Legal requirements
- Name of the shop, the name of the shop must be easy to remember and eye catching
PREPACKAGING
Pre-packaging is the putting of goods in distinctive packets of standard sizes such as boxes, bottles, wrappers,
tins, cartons etc. by the manufacturer before (prior) selling them to wholesalers, retailers or consumers. It
allows a customer to handle the goods without damaging the content.
BRANDING
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Branding means the use of a name or mark to distinguish one producer’s product from another. It makes the
product unique and easy to identify.
Shopping complexes
A shopping complex is a variety of shops in the same location, under different management and do not
compete directly with each other but work to stimulate business for one another. An example of a shopping
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complex in Zambia is Manda Hill and Arcades situated along the great East Road in Lusaka. It is also referred
to as a shopping mall.
(b) Consumers
➢ they purchase all their requirements from one place since there is a variety of shops in the
same locaation, such as chemists, department store, etc.
➢ they are locaated in free trafic areas
➢ they are easily accessible by the customers as they are near the bus stops
➢ they have extensive parking for the customers
➢ they also provide banking facilities and other additional ammenities such as restaurants and
entertainment like video shows.
➢ may offer competitive prices/goods may be low priced
➢ the atmospere is very conducive for shopping
SELF SERVICE
Self service is the method of selling where the goods are well displayed on the shelves within the easy reach of
the customers. It was firstly used in supermarkets, but nowadays it is used by main retail outlets.
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Its development has further been aided by both prepackaging and branding which enables the
goods to be clearly be distinguished by the customers without assistance.
▪ Electronic Commerce is the buying and selling of goods and services on internet.
▪ Electronic commerce is also referred to as on line shopping.
▪ Electronic commerce is one of the latest trends in retailing.
▪ Electronic commerce is about using computers as on line shops.
▪ On line shops are open for 24 hours a day and 7 days a week.
On line shops offer to customers and businesses a variety of high quality but cheap in price products such as first and
second hand cars, office equipment, furniture etc. Many business people purchase goods from on line shops for resale on
local markets.
A person wishing to purchase goods or services on internet has to visit the website of the on line shop or trader. Website
is an internet provider such as Yahoo, Hotmail, Excite etc.
When a person has found the goods or services he/she wants to buy, he/she will have to make payment. The following
are some of the modes of payment used for on line transactions:
▪ Carry out background check on companies offering on line stores that you intend to deal with.
▪ This will avoid internet fraud brought about by unscrupulous people who set up fake online stores that cheat
people out of their money.
▪ Consider the legal terms of the online store you intend to deal with.
▪ This will enable you to know the policies of the company on matters such as shipping, liabilities, refunds, delivery
policy etc.
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▪ Ensure that the website is secure when you send information like bank account details to online store. Where a
password is used, the word must have at least five letters for easy remembering. The password must not be
written down. This will prevent a wrong person from shopping at the online using your account.
▪ It is advisable to start shopping on internet with small items and then move on to bigger
things.
▪ Spend more time looking for new websites and deals on offer.
VOLUNTARY CHAINS
This is another change that has taken place in the retail trade. They are usually a group of independent retailers who have
joined with the wholesaler in order to reap the benefit of bulk buying. Members of the voluntary chain put their orders
together with the wholesaler who is also a member, the wholesaler is then able to buy goods in bulk from the producer at
factory price at a great discount.
▪ Member retail shop may commit themselves to purchasing goods from the parent wholesaler
▪ There are some controls on the prices small retail shops may charge on the goods
▪ Goods may be delivered straight to the small retail shops
▪ Each member retail shop may remain a separate business entity, independently owned and controlled
Trading Stamps
▪ are used as a form of trade discount or price reduction
▪ it is also one of the forms of sales promotion method
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- it is a retail machine that releases items required when a coin/token is pressed in the slot
- used in busy central sites such as hotels, bus and rail stations
- sells the goods such as drinks, chocolates, cigarettes and stamps
- can be hired or be bought
- it is a labour saving retailing machine
- it is available 24 hours daily
There are two major forms of buying and selling on credit. Namely;
The differences between Hire Purchase and Deferred Payment under Credit Sales
o In Hire Purchase, the buyer becomes the legal owner of the item after paying the last intalment while
in deferred the buyer becomes the legal owner of the item immediately the deposit is paid
o Hire purchase deals with durable goods while credit sales deals with non durable
o Under Hire Purchase, the goods may be repossessed in case the buyer defaults in payment while in
deferred payment the goods may not be repossed but the buyer will only sued for the remaining
balance
o Hire Purchase may be financed by the finance company while credit sales may not be financed by the
finance company
o Under Hire Purchase, the buyer can not sell the goods until all the payments are completed but under
deferred payment thre buyer can sell the good any time as she becomes the legal owner of the goods
as soon as the deposit is paid.
why the consumers need protection when buying goods and services
o different consumers might be charged different prices (fluctuating prices)
o the consumers might not receive the right content of the goods (under weight goods)
o advertisers might make false claims (misleading advertisements)
o some salesmen are too persuasive to induce to the consumers to buy the goods
o some manufacturers might try to cut the production cost by using inferior or dangerous ingrediates in
the products
o some traders may over charge the consumers by fixing prices at high levels
WHOLESALE TRADE
Intoduction
The word ‘whole’ simply means bulk and to sale is simply to transact, trade is the buying and selling of goods and service with a view of
making profit. Wholesale trade ican therefore be defined as the buying and selling of the goods in bulk(large quantities). A person who
sells the goods in large quantities is known as a wholesaler. A wholesaler is a connecting link between the manufacturer and the retailer,
and being a middleman functions
Describe the functions of a wholesaler
- Buys goods in bulk from the manufacturer hence clearing the manufacturers’ production line
- Warehouses the goods awaiting demand to ensure steady flow of goods, hence preventing price fluctuation(evens
out prices) and allowing the manufacturer to produce the goods ahead of demand
- Breaks bulk and sells goods in smaller quantities to retailer
- Finances the retailer by providing credit and manufacturer by paying promptly
- Acts as an intermediary between manufacturer and retailer by passing information/complaints to manufacturers
- Provides a variety and wide range of goods for the retailer and consumer which is gleened from different producers
- Prepares goods for sale by branding and blending them.
- Provides transport (delivery) for goods from manufacturer and to the retailers premises
- Operating cash and carry warehouse.
- he is a risk bearer, that is by storing the goods on behalf of the producer or rtailer, the goods may go out of fashion
or they may be gutted by fire or stolen whilst in the warehouse.
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- increase in trade of technical goods that may require installation by the manufacturer such as Digital Satelite
Television package(satelite dish) and computers
- demand for speed delivery of the goods such as Newspapers
- increase in trade of goods with low turnover such as furniture
SURVIVAL OF THE WHOLESALER[strategies taken by the wholesaler for the continued existence]
Despite the above factors working against the wholesaler, he has taken the following steps to remain competitive:-
- formation of voluntary chains
- small retailers register as members and are supplied with the goods by the wholesaler
- and are conviniently situated where the retilers have established their shops
- small scale retailers do not have enough capital
- therefore they still depend on the wholesaler to supply them with the goods, to offer them credit facility and
delivery service.
- they operate co-operative wholesale society
- operates a cash and carry warehouse as well as retail in the same premises
- does not offer transport
- does not sell on credit
TYPES OF WHOLESALERS
CASH AND CARRY WHOLESALER
The cash and carry wholesaler is normally located on the outskirts of town and probably on the
industrial area of business site.
Reasons for the location
- no need for prime retail site for display
- retailers will have own transport to travel and collect their goods
- site less costly and prices or costs must be kept as low as possible
- large space required for car park or delivery bays
GENERAL
They deal in a wide range of goods and they usually have branches in many parts of the country
SPECIALIST WHOLESALERS
These are wholsalers who deal in a limited range of goods. They are usually a source of supply for many retailers and they sell both
home produced and imported goods
Co-operative Wholesale Society
This is the wholesale business formed by the co-operative retail societies
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Factors
▪ they are agents concerned with selling of goods/services in the home trade
▪ they sell in their own names although not theirs
▪ They sell on behalf of their principals/someone else or other people and they do not buy.
▪ they have possession of the goods and documents of title
▪ they may sell the goods to the customers on credit
▪ They are remunerated by a commission
▪ And when they guarantee payment by buyers,
▪ they get an extra del Credere commission
▪ in addition their normal commission for bearing risks such as bad debts.
Brokers
▪ Are agents concerned with both buying and selling of goods/services
▪ on behalf of the principal/someone else or other people
▪ they do not have possession of the goods nor do they sell in their own name
▪ they merely bring buyer and seller together or into contact.
▪ They are remunerated by commission called brokerage
Merchants
▪ are principals/traders who buy goods for themselves.
▪ They import to sell at home.
▪ They act as wholesalers and provide delivery, warehousing etc.
▪ They are remuneration is profit
▪ which is the difference between the buying price and the selling price
MARKETING BOARDS
It is an association of agricultural producers and is established by an act of parliament.
Warehousing
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This is the provision of ample accomodation and protection given to goods from the time they are produced until when
they are needed by consumers.
- it provides a place for the storage of raw materials, equipment, partly finished goods and finished goods awaiting
sales, transportation and processing
- it provides storage for the seasonal goods such as rain coats, jerseys, Christmas cards etc.
- provides storage for goods in transit (entrepot) trade/stores goods in entrepot trade
- it allows production to take place ahead of demand
- ensures continuous production of goods
- it evens out prices/stabilises prices/avoids price fluctuations of goods and it helps to prevent shortages of goods
- reduces pilferage/theft of goods
- it protects goods from adverse/bad weather elements/conditions
- it provides room for the goods to be prepared for sale such as branding, blending packaging and labelling
- it allows some goods such wine, tobacco, and cheese to mature
- it provides space for the retailers to inspect the goods before buying them
- it may be a cold storage or a wholesaler cash and carry
- imported goods may be stored in the bonded warehouse
- thus saving the working capital
- it may be a bonded warehouse which provides storage for dutiable goods awaiting duty to be paid or imported goods
awaiting re-export
- may be at the airports/ports/bus terminals
Reasons why warehousing facility is essential to an importer of dutiable goods such as wine
- need to store goods on which duty has not yet been paid
- enables wine and spirits to mature
- reduces theft/pilferage of goods
- useful in entrepot trade or when bottling/blending has to take place or when seeking a buyer who
will then pay the duty hence economising on the traders’ working capital
Types of Warehouses
1. The wholesale Warehouse
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The wholesalers buy goods in bulk and keep them in their warehouses before selling them. Most wholesalers
operate large warehouses which give them the space not only to protect the goods but also to break the bulk,
prepare goods for sale and allow retailers to come and inspect the goods before they buy them.
5 Bonded Warehouses
▪ These are used for the storage of dutiable goods
▪ on which duty has not yet been paid.
▪ They are under the strict control of the customs and excise authorities.
▪ Goods are only released from them when the duty is paid.
▪ Goods may be sold whilst in the bonded warehouse
▪ To raise more money to pay for the duty
▪ If there is inadequate working capital
▪ Therefore maximising working capital
▪ The goods may be blended or prepackaged but not manufactured
▪ they provide a record of goods bought and sold by the business, such as purchases as sales invoice
▪ they enable business activities to be controlled by providing a record of income and expenditure such as the
receipt and cheque
▪ they make it possible for information to be passed on to other traders, such as the catalogue or quotation
▪ enables business debts to be collected by providing a record of debtors, such as the statement of accounts
shows the amount the buyer owes the seller
▪ confirms the delivery of goods, such as the delivery note and the consignment note.
How the buyer may obtain the information s/he requires before placing an order
- send for a catalogue and price list/trade journal
- send an inquiry to the seller and receive from him/her a quotation or catalogue or price list
- telephone the supplier and quotation him for any information
- by attending a trade exhibition/trade fair organised by the seller
- by asking the seller for demostrations for his/her goods
- by asking the seller for visits by his/her sales representative
AN INQUIRY
This is a letter prepared by the buyer and is sent to the supplier
asking for the availability of goods, their sizes, prices, delivery dates and terms of sales.
It is possible to make a verbal inquiry on the telephone, and ask for a quotation although verbal inquiries may not be
taken seriously.
ENQUIRY
The Salvation Army
Zambia Territory
Chikankata High School
PRIVATE BAG S 1
MAZABUKA
DATE ………………
TO BUDGET STORES
Mazabuka Branch
Dear Sir/madam
Please quote your best terms for the supply of the following:
1 60 Lounge suit- red
2 20 Display albums- grey
3 20 Card index cabinet - white
4 60 Card index cabinet - grey
5 10 Fling cabinet - green
Yours faithfully
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Mulenga Mwanakashi
Purchasing Manager
A tender
This is sent to the seller in response to an advertisement inviting quotations or estimates for the supply of certain
goods or services. An estimate is an order to carry out a service or to undertake work for someone at a certain price.
This price is only the expected cost of the work to be done and is not a definite price.
A Catalogue
▪ This is usually in form ofa booklet/pamphlet with pictures of goods
▪ containing description of the product,
▪ the terms of payment and terms of sale
▪ such as trade discount, cash on delivery and cash with order
▪ The prices may be shown under the article.
▪ They are usually issued once a year or at longer intervals
▪ and are normally printed by the outside firm, which makes them more expensive.
▪ They are usually used by the supplier as a means of advertising their goods.
▪ They are more common in mail order firms.
A Price List
▪ This is usually used with the catalogue.
▪ Each item in the catalogue is numbered and the same number is shown in the price list, along the price for
the item.
▪ A number of price list may be issued for use with only one catalogue because of the cost of reprinting
catalogues when prices change.
▪ The buyer will usually obtain a list from several firms and compare prices, taking careful note of the
respective terms offered by each.
▪ It shows the list of goods in stock with their prices
▪ The description of the goods such as the colour, quantity and quality.
PRICE LIST
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BOOK WORLD,
P. O. BOX 300001,
LUSAKA.
Ref No. Description Price
CO 12 Carbon papers A4 65 850 per box
D125 Ball pens (assorted) 45 000 per box
D127 Pencils (assorted) 30 000 per box
D150 Erasers 20 000 per box
P250 Quality bond papers A4 120 000 per box
THE QUOTATION
• This is a reply to the inquiry.
• It is usually sent by the supplier to the customer.
• contains a detailed description of goods asked for/available such as colour and quality,
• the price at which goods are offered,
• terms and conditions of sales including terms of payment and delivery date.
• The customer uses the quotation to compare prices and conditions offered by various suppliers before
placing the order.
• It shows name and address of the seller
• Shows the date when it was written
BUDGET STORES
MAZABUKA BRANCH
LIVINGSTONE ROAD
MAZABUKA
QUOTATION NO.. 384120
QUOTATION
TO. Chikankata High School
Private Bag S 1
Mazabuka
Prices valid for 21 days Orders over K50 000 000 sent carriage paid
Delivery within 4 weeks of receipt of order
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Signature.
THE ORDER
This is an instruction to the supplier to supply a particular good(s).
It can be made on a special order form or in an ordinary letter.
Orders may also be placed verbally on the phone, but verbal orders must be followed up by a written document to
avoid misquotation and the supply of wrong items.
The order contains:
• The description of the goods required;
• The quantity ordered;
• Price, as given in the quotation or catalogue;
• Delivery date and cost of carriage;
• The terms of sale specifying whether there is credit or not and the discount offered. The importance of the
order is that it confirms the customer’s seriousness in purchasing the item.
BUDGET STORES
MAZABUKA BRANCH
LIVINGSTONE ROAD
MAZABUKA
Your Ref. 364120 Our Ref. 81434
ORDER FORM
Order No. 461710 Date …………………..
To. Chikankata High School
Private Bag S 1
Mazabuka
ADVICE NOTE
The advice note is sent to advise the buyer that the goods ordered have been despatched.
It is usually sent ahead of the goods.
It specifies the method of transport used, date of despatch, quantity and description of the goods.
If the goods do not arrive within a reasonable period of time the buyer should advise the seller.
As the advice note usually shows what is on the invoice,
it provides an opportunity for the buyer to spot any mistakes, which can be corrected quickly or in advance, and to
prepare the necessary space for the goods when they arrive.
ADVICE NOTE
BUDGET STORES
LIVINGSTONE ROAD
MAZABUKA BRANCH
MAZABUKA
Delivered to: ………………………………
………………………………
………………………………..
…………………………………
Date Despatched: ……………………………..
Order No. ……………………………………. Dated: ………………….
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A DELIVERY NOTE
It usually contains the same information as the advice note .
it is sent with the goods in order to assist the buyer to check the goods on arrival.
It is used only when the seller is using his or her own transport to deliver the goods to the buyer’s premises
A duplicate copy is signed by the buyer acknowledging receipt of the goods.
The delivery note is usually the same as the invoice, except that the prices are Omitted
A CONSIGNEMENT NOTE
This is a document used when the seller sending goods to the buyer by hired transport.
It is a request and instruction to the carrier to accept and deliver a certain consignment to the consignee.
It is made out in triplicate.
The carrier’s driver will sign one copy and give it to the sender who will keep it as his/her receipt.
It contains the address and name of the consignee;
a description of the goods;
the quantity of goods or number of packages;
and a statement of who is responsible for any possible damage to the goods and freight charges.
The consignment note is sent together with the goods and the consignee signs it to acknowledge receipt of them when
the goods arrive.
The carrier will then produce this copy when claiming the freight charges (if it is not pre-paid).
.An invoice
This is a bill sent by the supplier to his customer containing details of the goods supplied relevant to the order made,
such as description of goods sent, quantity supplied, price charged, terms of sale, trade discount and value added tax
if any.
It is important because :
• It shows the quantity of the goods supplied, the unit and total price
• It tells the buyer the amount he/she owes the supplier and,
• Shows the details and description of the goods,
• Discount given(trade discount) and Value Added Tax(VAT)
• It shows name and address of the buyer and seller
• It is used by the supplier to start the accounting process
• It is the request for payment for the goods supplied by the seller
• It is form the basis of a contract of purchas or sale of the goods between the buyer and the seller
• It gives details of goods supplied to the buyer
• The buyer may also verify if everything ordered has been sent by checking the invoice against the order (if
there is no delivery note).
INVOICE
BUDGET STORES
MAZBUKA BRANCH
MAZABUKA
E&OE
Explanation of the terms:
▪ 2% one month means that 2% cash discount will be allowed if payment is made within one month
▪ 1% two months means that 1% cash discount will be allowed if payment is made within two months
▪ Net means that no cash discount will be allowed/full amount owing to be paid
▪ E&OE means Errors and omissions Excepted
NOTE: The address of the sender of the document is always on top of the document.
A PROFORMA INVOICE
is a special type of invoice sent before the goods are delivered if there is any doubt about the credit standing of a new
customer, or if the goods are being sent on approval. It shows same information as the invoice.
A CREDIT NOTE
• This is usually printed and typed in red so that it will not be confused with an invoice or a debit note.
• It is issued when the seller owes the buyer some money
• and totals are usually subtracted from the invoice before it is paid./reduces the amount indicated on the
invoice
• Informs the buyer that his/her account has been credited
• A credit note is sent by the seller to correct an overcharge,
• or to allow for the return of faulty goods
• or empty crates and containers which the buyer has paid for.
• It is also issued for surplus quantities of goods returned to the supplier
• Shows the unit price, total price of the goods returned, trade discount and reasons for the return such as for
wrong goods supplied.
• Shows name and address of the buyer and the seller
• The credit note is important because it corrects the mistake that appears on the invoice.
• It is usually printed in red ink to show that money is going out from the business
CREDIT NOTE NO. ……………………..
Date…………………….…..
………………………………..
…………………………………
………………………………..
………………………………..
To: ………………………………….
………………………………………….
…………………………………………..
…………………………………………..
DEBIT NOTE
This is a document sent to the buyer by the seller if he/she has been undercharged.
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The seller has a right and obligation to issue both the credit and debit notes if the letters “E&OE” are printed on the
invoice. This means Errors and Omissions Excepted”, so if any mistake is made on the invoice the seller can issue
the note to make the necessary correction.
Debit Note
BUDGET STORES
LIVINGSTONE ROAD
PLOT NO. 87
MAZABUKA BRANCH
MAZABUKA
Date ……………………
TO: Chikankata High School
Private Bag S-1
Mazabuka
This is a summary of all transactions made between the buyer and seller during the month. It is sent by the supplier
to the buyer every month. The main pieces of information contained in the statement of account are:
NOTE: entries made in the debit column increases the balance figure and entried made in credit column reduces
the balance figure
The last figure in the balance column shows the amount of money the buyer owes the seller at the end of the
month
STATEMENT
SUPREME FURNISHERS
PLOT NO. 87
MAZABUKA BRANCH
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Terms:
E&OE
. A Cheque is sent by the buyer to the seller as one of the method payment for goods. Since the date on the cheque is
the day on which the purchaser paid the supplier, the cheque acts as a record of date of payment. Payment for the
goods could also be made by standing order, credit transfer or direct debit. The cheque contains the following
information:
• The date on which the cheque is drawn
• The name of the payee
• The bank on which the cheque is drawn/name of the drawee
• The drawer’s name and signature
• Amount to be paid both in words and figures
•
Drawee
Payee Date on which
the cheque is drawn
K5 000 000
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A receipt
This is rarely used today since the cheque act of 1957, the cheque itself when it has been paid in the seller’s account,
and returned to the drawer, acts as a receipt. If payment is made through the credit transfer system, the statement
and the attached credit transfer slip are stamped by the bank cashier which act as a receipt.
TRANSPORT
Definition: It is an aid to trade that is concerned with the movement of goods and people from one place to
another.
Importance of efficient means of transport
Efficiency means of transport is important to a company or factory such as Zambia – China Mulungushi
Textiles which may a have branch within and outside the country due to the following reasons:-
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- It levels out supply by transferring goods from where they are produced to where they are needed,
therefore helps to prevent scarcity
- Provides more opportunity for specialisation
- This leads to cheaper goods to consumers
- It clears the line of production for manufacturers
- It is used for the delivery of raw materials to the factory.
- It is used to ferry partly finished and finished goods to the warehouses and customers.
- Used to move equipment or space parts to the factory, offices and between sites.
- Allows the executive/management to travel between offices and factories.
- Allows sales represents/agents to move efficiently both within the country and overseas to meet
their customers.
- It enables goods to reach the customer at the right time, right place, right condition in order to
satisfy human wants.
- It may bring revenue to the company if it operates its own fleet of vehicles.
- It encourages tourism throughout the world.
- It provides employment to those who work in various transport forms.
- It helps countries to develop their economics by opening up wider market for the products.
- The above would usually include sea and air transport for overseas transactions or road and rail
transport for transactions within the country.
- Air transport is particularly important to a form for urgently needed goods or travel worldwide.
- Road transport is important for the carriage of goods and people door to door.
FORMS OF TRANSPORT
Own fleet
Many large companies find it more convenient to buy, and operate own fleet of trucks for delivery goods and
collecting raw materials
Advantages of own fleet:
- It can be cheaper if the company produces enough goods to keep the trucks busy.
- It gives direct contact between customers and supplier. This means problems can be identified and
solved more quickly before they become too serious/big.
- Better care can be taken to the goods as the business will be handling its own goods
- Deliveries can be arranged more flexible with respect to time and routes.
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- The Company’s vehicle can be painted with advertisements on the sides so the fleet provides free
advertisement for the business whenever the vehicle goes.
- The use of own fleet means that fewer documentation will be required.
- Raw materials and equipment can be collected on and when they are needed.
- Own fleet is more convenient as goods can be delivered when necessary.
Road transport
Road transport is by for the most important form of transport on most countries. It has drastically increased
due to the following reasons,
Advantages of road transport
- It carries goods direct to their destination without any transhipment.
- Door to door delivery is possible by road.
- It is convenient and fast over short distances
- It is more flexible as far as time concerned, that is no timetables and schedule may be followed.
- May be economical due to less capital costs/transhipment cost.
- Goods may better be protected or less pilferage/theft as the driver may keep an eye on them all the
time.
- Roads reach almost everywhere
- Goods may be delivered anytime
- It is suitable for delivery perishables
- It is suitable for small loads of consignment
- It is suitable for most type of goods
- It is possible to use own fleet of vehicles
- Special facilities have been developed in railway transport for carrying bulk deliveries dangerous
products such as fuel or oil, coal, cobalt, cement, iron ores etc.
Sea transport
This is by for the most important form of water transport for the carriage of goods. There are various
classifications of vessels used in sea transport and these are:-
1. Passenger lines
- These are mainly used for the carriage of passengers to various parts of the world.
- They may curry some Cargo such as mails.
- They follow strict timetables and schedules
- They cannot wait for any delayed Cargo or passengers to arrive.
- They follow fixed routes
- They usually call at the main parts of the world.
- Their main advantage of this form of transport is that transport can be planned ahead of time and
space.
- The charges are usually fixed jointly by the shipping conference to which their owners belong.
2. Cargo lines
- These are ships used mainly for the delivery of goods although they may also carry few
passengers
- They operate on fixed routes and adhere to regular timetable.
- The ship will leave the port on time even if some of the scheduled cargo has not yet arrived.
- They too belong to the shopping conference and their charges are also fixed.
(c) Tankers
- These are bulk carriers specially designed to carry liquids
- Such as oil and any bulk liquid.
- They are specially designed to minimise safety, and loading and unloading liquids.
- There size helps to cut off freight charged and harbour dues.
- They are able to ferry large amount of oil demands worldwide.
Disadvantages
- It is relatively slow for urgently needed goods.
- It has high insurance costs because of high risks jettisoning of goods.
- There is high risk of pilferage and theft.
- It does not offer door to door services as some countries/areas may not have seaports.
(Transhipment is inevitable).
- Bad weather can cause delays and loss of goods.
- Land locked countries like Zambia, Botswana, Lesotho, etc do not get the full benefit of sea
transport.
CONTAINERISATION
➢ This is the system of transporting or delivering goods by the use of containers.
➢ Containers are large metal boxes of standard sizes/specified sizes
➢ in which goods are picked at the manufactures premises/warehouse
➢ and are secured by the supervision of customs authorities
➢ and not opened until they reach their final destination.
➢ This form of transport is mostly used in road, rail and sea transport.
➢ The freight is based on the size of the container
➢ It reduces handling of the goods
➢ It reduces the risk of theft and damage to the goods
➢ It reduces insurance rates
Advantages of containerisation
- Increased speed of delivery
- as containers can be transferred quickly/past between different form of transport.
- Goods are not taken out of the containers until they reach their final destination
- which eases the problem of loading and saves time.
- Eliminates the use of warehouses as the containers can be stocked outside.
- Increases safety as there is less risk of pilferage thefts and damage.
- There is a quick turn round for vehicle/ship,
- which may reduce transport costs or handling costs.
- T.I.R. (Transport International Routier) allows increased speed through customers.
- Packing and insurance costs are reduced as containers improve safety of goods.
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Disadvantages
- not all vehicles and ships are standardized to carry containers.
- This means the company might still need to hire standardized trucks.
- Not all terminals (Ports) have mechanised container handling facilities.
- This will require expensive upgrading of ports for them to be able to handle containers.
- It requires large capital investment to establish container ports.
- They are not economical for carrying small loads, as there would be wastage of space.
- Many bulk goods such as timber, iron have limited capacity in air transport
- as it has weight limits/restrictions.
AIR TRANSPORT
Air transport has seen a marked improvement in recent years and as a result, there has been a rapid growth
in the volume of cargo traffic and passengers using air transport. Some of these include:
- The increased the importance of air freight due to more airports world wide, bigger air craft and
better airport facilities
- The building of larger aircraft which are porter and move reliable.
- An improved design such as fuse long and enquire has increased fuel economic.
- Improved loading through large class at the nose and tail has cut loading capacity.
- Increased in the number and improvement of handle facilities, provision of better storage and
handle facilities worldwide has seen remarkable change in air transport.
➢ The decline in volume of goods carried by railways in many parts of the world
➢ The removal of customs barriers at entry points to the country has facilitated the use of
transcontinental vehicles.
➢ The general improvement in transport facilities have speeded up the movement of goods worldwide.
Pipeline
This is the system most used in the delivery of liquids such as crude oil/petroleum products.
Advantages of pipeline
o They are cheaper to maintain
o They carry large volumes of goods
o They save on labour
o There is no congestion or does not pollute the environment
o Can be used for alternative fluids/gases/liquids
o May offer direct delivery/door to door
o Goods are protected from contamination
Disadvantages of pipeline
o The initial cost of constructing a pipeline is too high
o It is not suitable for irregular cargo
o It is limited to transportation of fluids
o It has no return loads
o Can easily be attacked by enemies in times of war/ open to sabotage
o It requires many pumping stations if the gradient is high
o There could be high losses in case of leakages
o May be subject to theft/vandalism
o Leakage may pollute the environment
Insurance
Insurance is an aid to trade, which under takes to cover risks, that may or may not (probabilities) in business
and if they happen, they will cause financial losses. It involves the insurer and the insured.
Insurer
This is the party (insurance Company) which under take/ giving the cover or Insurance
Insured: This is the party (person) seeking for insurance or guarantee of compensation.
Definition:
Insurance is the legally binding guarantee given by the insurer to compensate/indemnify/restore or cover the
insured for any financial loss which may be suffered as a result of the occurancy of a specified event which
may or not occur(probabilities). In return for this guarantee the insured makes a periodic payment called
premium to the Insurer. The premiums are paid into a central fund (pool) for the claims of the unfortunate
few (ones). The profit on the Insurance Company is based on the statistical probability that only a small
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percentage of the insured person will ever have to make claims. Therefore, the premium of many pays the
claims of the unfortunate few who have suffered financial loss as a result of an insurable risk leaving the excess
as a profit for the insurer for the services he provides. The larger the number of people contributing to an
Insurance pool for a particular risks the less likelihood of that group suffering a large percentage of less than
the average for all the people open to the risk. This is known as law of average. This is because there is less
chance of loss to the Insurance company. When the number insuring a particular risks with it, is large, the
amount or premium likely to be charged is lower.
Purpose/Functions of Insurance
- To pool the risks of many insured persons and spread the financial losses of the unfortunate few
over the fortunate few over the fortunate many.
- It reduces the risk of financial loss by giving indemnity i.e. giving security to the insured.
- It reduces, fear by increasing funds, which might otherwise have to be set aside in case of a calamity.
- It allows businessmen and businesswomen to enter into large-scale contract, which might otherwise
be avoided for fear of loss.
- It is also on invisible export and means of saving for some people (in the case of an endowment
policy)
Pooling of Risks
▪ Pooling of risks is the basis of insurance which enables the fortunate ones to help the unfortunate
ones.
▪ A policy holder pays a premium into the pool from which compensation is paid to those who claim.
▪ The funds in a pool must be sufficient to cover compensation, administration cases and leave some
profits for the insurance company.
▪ There is likely to be a separate pool for each risk.
▪ Some companies like Konkola Copper mine and Mopani Copper mine may run their own risk, that is
use self insurance.
▪ If there are many who wish to insure against a particular risk, more premium is contributed, but if
there are few calamities, the premium is low.
▪ For the principle of pooling of risks to work, the insured persons must not suffer losses all at the same
time. If they all suffer the loss at once, they can be no enough funds in the insurance pool to pay
everyone.
PRINCIPLES OF INSURANCE
There are the basic ‘rules’ of insurance which are applied to ensure that the policy is effective and it is not
prone (open) to abuse:
(i) Utmost good faith
▪ Both the insured and insurer must reveal every relevant and material facts relating to the policy being
undertaken.
▪ The insured must fill in the proposal form by telling the truth without leaving out any material facts
relating to the contact.
▪ This enables insurance company to assess the risk and decide whether of not to accept it and then
determine the amount of premium
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▪ The insurance company must also act in the utmost good faith by settling material facts relating to the
contract.
▪ The contract may be declared null and void if utmost good faith is not followed by both parties (breach
or utmost good faith) renders the contract well and avoid.
(ii) Indemnify
▪ This principal states that the policy holder must be restored/compensated to his or her former
financial position without making profits out of a loss. In either words he/she must be placed in the
same financial position as before.
▪ She is not allowed to make profit out of a loss as she may cause the risk to occur.
▪ Indemnity does not apply to life assurance and is limited to the sum insured or the market value of
the object, therefore the insured must not over insure or under insure.
▪ Contribution applies if the policy holder insured with more than one insurance company.
▪ In this case, insurance companies contribute proportional amounts to make up for the loss.
▪ Subrogation applies if the insured is fully compensated/Indemnified for the loss E.g. in the case of a
vehicle stolen or damaged, the damaged (scrap vehicle) or recovered property belongs to the
insurance company.
▪ The principle of average under indemnity means that if the insured does not increase the amount of
the cover when the value of the insured object. increases, he will not receive the full compensation
in the event of the claim, instead he will receive part of the compensation based on the average cause
or the ratio of the amount to cover the market value of the object
i.e . amount insured x Amount of compensation
Actual value of object
Proximate cause
This doctrine entails that the insurance company can only compensate a person who has suffered a loss if the
risk insured against is the immediate cause of the loss.
- There is no compensation payable if the loss caused by the risk is not insured against
- For instance, if Mr. Masimpe assures his life against death by motor accident and as he is travelling
from Mazabuka to very far place, he dies of a heart attack no compensation would be paid, this is
because, the immediate cause of his death is a risk which he did not insure his life against.
- The application of this doctrine of proximate cause is further illustrated in fire insurance.
- A fire insurance policy will not only cover losses caused directly by fire, but use of water or
demolition of part of the building to prevent the spread of fire to other parts or to neighbouring
building.
An Insurance Policy
➢ It is a document which sets out terms and conditions of an insurance
➢ Covering the precise risk
➢ Period of cover
➢ Exceptions such as life assurance like suicide
➢ And the amount of premium to be paid
Under writers
o These are principals who accept Insurance risks or cover a risk such as marine
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Branches of insurance
Because there are many risks facing individuals and businesses, many different insurance policies have been
designed to offer various insurance cover. These are:-
Life Assurance
➢ The term assurance refers to certainties,
➢ that is, risks that must certainly occur such as death.
➢ The term insurance refers to probabilities,
➢ that is, risks that may or may not happen such as fire, theft, accident and flood..
The principle of indemnity, does not apply to life assurance. This is because when a person dies, no amount
of monetary compensation will restore him/her to life. Assurance is looked at as a form of serving plan rather
than insurance. It is true and we all know that we are going to die but we are not sure when we will die.
Life assurance is a good way of ensuring that surviving members of the family are taken care of
Usually, if we live for a very long time and die long after retirement, it is possible that our savings may be
sufficient to meet the demands of our dependants. But if we die young we are likely to leave a widow and
young children with no money to look after them. This is where life assurance will be helpful.
Life policies are normally sold by insurance agents who are different from brokers.
Insurance agents usually act on behalf of a particular company. They never handle premiums. The
premiums are paid directly to the insurance company – Life assurance policy covers the following:
© ENDONMENT POLICY
Under this policy the assured is covered for certain period of time.
- The period may be from 5 years to 20 years.
- It provides compensation in money (sum assured) either at maturity date or death of the assured
person whichever comes first.
- Endowment policy serves two useful purposes f:
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- Endowment policy profit with profit assures the assured person to share profit made by the
insurance company from the premiums.
Fire Insurance
- Fire is a risk that has caused untold misery to mankind.
- The major Insurance cover available are
➢ Materials used in the construction of the building i.e. whether materials are bricks or wood or
concrete and whether roofing is a thatch or iron sheets or asbestos.
➢ Whether inflammable materials such as petrol, diesel, paraffin etc are stored in the house or not.
➢ Nature of the surroundings of the house i.e. whether there is danger of fire breaking out from the
neighbouring houses or not.
➢ Whether additional fire protection facilities are available or not e.g. fire brigade services provided
by local government.
Accidental Insurance
This branch of insurance covers a wide range of Insurance policies and includes the following:
A variety of motor Insurance policy exists. The main ones include the following:
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Public Liability
Public liability insurance covers business owners and manufacturers against claims by members of the public
for deaths, accidents etc. caused to them due to business owner’s negligence.
Examples
(i) A minibus owner may insure his/her minibus against the possibility of accident happening to
members of the public whilst travelling on the bus.
(ii) A manufacturer may insure against claims for death or injuries resulting from the use his/her
product e.g. a meat pie manufacturer can insure against the possibility of poisoning to members
of the public after eating the meat pie.
The money that may be required in compensating injured members of the public might amount
to a billions of Kwacha. A business without a public liability insurance may not be able to continue
carrying out its business activities if large claims for deaths or injuries is made on it by members
of the public. It is important therefore that a business takes up a public liability insurance so that
claims made by members of the public for injury or deaths are not by insurance companies. This
would leave the operation of the business unaffected.
4. Marine Insurance
Marine Insurance Covers losses or damage to property and life caused by sea risks. The main types of
marine insurance are:
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MARINE POLICIES
Types of marine policies include;
(a) Voyage policy
This type of marine policy is taken out for a particular journey e.g. from Dar e slam to
New York: USA: Cargo insurance is usually taken on voyage policy rather than on a time policy.
MARINE LOSS
Marine costs may be classified as:
(a) Particular average
Particular average refers to any form of cars or injury that may be suffered whilst the ship or
goods are in transit. The losses suffered may be complete or partial loss but it should be as
result of the risks insured against.
COMMUNICATIONS
Communication is an aid to trade concerned with informing people on goods and services available,
and enabling businesses and individuals to be in contact with other businesses and relations within
the country and abroad.
Importance of Communications
➢ provides business people with efficient means of contact within the business organization
➢ e.g. communication between the branches of an organization, or between departments etc.
➢ informs the public on goods and services available on markets, where they can get them and at what price.
➢ enables businesses to be conducted world wide. Today, the whole world is one huge market. No matter where
a person lives, the various
➢ facilities available allow him or her to conduct businesses anywhere in the world.
➢ widens the markets for the firm’s products in both home and overseas trade.
➢ enables customers and suppliers in home and overseas trade to be contacted speedily
➢ by telephones, fax, electronic mail, telex, internet, air mail etc. thereby allowing for quick:
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➢ Placement of orders for goods urgently required e.g. spare parts etc
➢ Dealing with customers’ complaints, and for
➢ Settlement of payment and queries that may arise in a business transaction.
➢ enables businesses to compete with one another.
➢ enables businesses to penetrate new markets or widening of markets.
➢ allows businesses to be in contact with sales representatives in home and overseas markets.
➢ enables businesses to be in contact with stock markets world wide for detailed information on existing share
prices.
➢ is essential in organizing surveys or trade fairs to promote business activities.
A. Postal services
Postal services are services provided by post offices for posting and delivering of letters, parcels etc. The
following are just some of the postal services:
2) Poste restante
Poste restante is a postal service provided for visitors and travellers to town or city where they do not have a
permanent address. Letters, of a town from where the letters are collected. For example, Miss Maambo
Phiri, a visitor with no permanent address to Livingstone city can have her letters addressed as follows
Stamp
In the above example, Miss Lubasi who is expecting to receive letters from friends, relatives etc. by
poste restante service would be checking for her poste restante letters at Livingstone Main post office.
3) Data post
Data post is a postal service that provides a speedy, secure and highly reliable means of sending and delivering
urgent and important packages containing business documents and goods. It’s particularly useful for
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exchange of computer materials such as tapes, diskettes etc. Data post offers overnight door-to-door delivery
of packages or parcels handed in at post offices counter displaying data post sign. Packages are given
special security treatment. Data post is operated both locally and internally.
4) Registered letters
This post service enables valuable items such as cash notes to be sent through the post office. An envelope
or package being used in sending items by registered letter must have a large blue cross on it. Compensation
in proportion to the value of packet and registration fee paid on posting is paid if the item gets lost in the post
office.
A certificate of posting is issued to the sender as proof of posting. Upon delivery of a registered article,
signature of the person receiving the item is obtained as proof of delivery.
5) Recorded delivery
Recorded delivery is a postal service used when proof of delivery is required. It is used when sending
important documents such as examination certificates, plans, designs, legal documents etc.
Recorded delivery letters travel together with ordinary mail but are separated at the delivery point where they
are recorded in a book and signature requested from the person receiving letters.
8) Private bags
Private bags are used for posting and receiving letters. There are two keys to a bag. One is kept at the post
office another is kept by the owner of the bag. When letters are locked in the mail bag at the post office, they
can not be removed until the owner opens the bag at his or her own place of work. Therefore, private bags
provide more security to letters than post office boxes.
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11) Philately
This postal services is concerned with issuing of postal stamps and historical items of the post office. Philately
produces such as postage stamps, neckties etc depicting postal services are sold at the post office.
There are several more postal services provided by the post office.
➢ Postal services are usually cheaper than telecommunication services, and therefore there will
always be people using the cheaper postal services for their communication in preference to expensive
telecommunication services.
➢ Postal services are used in sending goods in parcels at distant places. It is not possible for one to send
a parcel of goods by telephone or by fax, or by telex. Therefore, there will be a continuing need for
postal services.
➢ Postal services do not require special equipment to transmit or to receive messages. Thus postal
services are usually used to send messages to the remotest areas.
B. Telecommunication services
Telecommunication services that are use by people engaged in commerce include telephones,
telegrams, telex, electronic mail, internet, fax, radio paging, radio messages etc.
1) Telephone
Telephone provides people engaged in commerce with speedy means of contacting other business people over
any distance either within the country or abroad. The circumstances in which a telephone may be used
include:
➢ When a customer wishes to inform his or her supplier that he or she was sent with wrong or
incorrect quantity or type of goods.
➢ When a trader needs to hold a discussion or conversation with a customer.
➢ When a person wants to speak to a particular person
➢ When a person wants an immediate response to a query etc.
➢ When a person wishes to leave a message on answering machine.
➢ When the supplier wishes to urgently inform his or her customer of a consignment of goods before it
arrives.
➢ When a potential customer wishes to discover the company stocked an item that he or she needs
urgently.
➢ When a businessman wishes to conduct an urgent business with a client.
➢ When a fax machine is not available
A discussion or conversation to clear the problem or seek advice or take other orders may take place
on telephone between the supplier and his or her customer.
a) A telephone does not provide a written confirmation of the conversation. Therefore contracts made
on telephones are risky because they may be disputed later.
b) A telephone is not reliable for messages that are highly technical and complicated in nature. For
example it may not be advisable for trader to place for an urgent order for a spare part for a
complicated piece of equipment using a telephone.
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c) Communication can prove difficult for telephone users who do not understand each other’s language.
Telephone services of commercial value to business people.
These include:
➢ Personal calls: - A person call is a telephone call that specifies a person to whom the caller wishes to
speak
➢ Local call: -A local call is a telephone call to another telephone number within the same area or within
the same telephone exchange
➢ Trunk call: -Trunk means long distance calls. A trunk call is another distant exchange.
➢ International calls: -An international call is a call from one country to another country e.g.
A telephone call from Botswana to Zambia.
➢ Transfer Charge Calls: -A transfer charge telephone service enables telephone subscriber provided
he or she agrees to pay for the telephone call before it is made.
➢ There are many more telephone services available for businessmen and individuals.
2 Telex Service
Telex uses teleprinter, which is a combination of typewriter and telephone for sending written
messages via a typewriter keyboard over any distance locally or internationally. Each
teleprinter has a telex number, which is used to connect one teleprinter with another to a telex line
The message is sent first by dialling the telex number of the receiving teleprinter. As the message is being
typed on the sending teleprinter, the same message is automatically being received on the receiver’s
teleprinter,
3) Facsimile (fax)
Fax is telecommunication service which is used for sending and receiving exact copies of documents including
exact copies of signature, pictures, diagrams and text over any distance either locally or internationally.
Each fax machine has a fax number that is used to connect one fax machine with another by way of
telephone numbers.
The message is sent by first calling the fax number of the receiving fax machine. Once an initial contact is
made, the document will be put on the fax machine for transmission. As the copy comes out of the sending
fax machine, the exact copy of the same document is being obtained at the receiving fax machine. A fax
machine is indeed a long distance photocopier.
Importance of a fax to people engaged in commerce
➢ A fax can be used to send and receive messages when the office is closed on 24 hours basis.
➢ A fax provides an instant written communication
➢ A fax can be used to transmit highly technical and complicated messages.
➢ Foreign languages can be easily translated.
➢ Fax transmission may be useful to lawyers who may need exact copies of text, signatures,
documents etc, needed in settling court cases.
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4) Telegrams
A telegram is a telecommunication service that provides business people with a s seedy means of sending
urgent written messages to most parts of the country or the world. The message is telephoned or faxed to
the post office nearest to the addressee and then delivered by hand. The charge for a telegram is calculated
per word and therefore unnecessary punctuated marks and statements should be left out in the message.
The use of electronic mail has reduced the use of telegrams service.
6) Electronic mail
Electronic mail is a way of sending messages electronically via the telephone line without the need to post
letters.
The person sending a message by electronic mail first prepares his or her information on a microcomputer.
He or she then transmits the message via a telephone network to a central computer. The person receiving
that message has to use another microcomputer and a telephone in order to get the message from the central
computer.
Electronic mail works much in the same way like the traditional post mailbox that the letters (ie the
messages) are sent in an electronic form and the post boxes (ie. Computers) are opened via the telephone
7) Teletext
Teletext is a communication service that enables people who have television with teletext to obtain a wide
variety network into a television or a computer reports, sports, news, cooking hints and other items of
general interest
8) View data
View data is a telecommunication service that enables a person to transmit information through a telephone
network into a television or a through the same view data network.
The most important characteristic of view data service therefore is that it enables view data customers to
send and receive information.
The importance of view data to people who are engaged in commerce include:-
➢ It provides electronic mails
➢ It enables goods and services to be advertised
➢ It enables goods to be ordered on sale order forms transmitted by the supplier to the customer’s view
data. (i.e. computer) screen.
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9) Radio paging
A person to be contacted carries a bleeper and when it indicated that he or she is wanted by giving a bleezing
or buzzing sound. The person picks up the nearest telephone, dials a number and is then put through to his
or her call.
Radio paging is usually used in large working places such as hospitals factories, plants etc.
Radios can be used to send urgent radio messages. For example, the owner of OBO ship who wish to divert
his ship from the original destination because of a local political crisis would communicate his message to the
ship master by radio
11) Internet
Internet is a global network of computers which allows users to access world wide information. It is
used for education, entertainment, business, electronic mails, advertisements, and World Wide Web.
Advantages of Internet
➢ Attractive and interesting adverts are shown in colour
➢ It has the widest coverage
➢ It combines visual impact with sound
➢ The user is able to receive the response immediately/it is fast
Disadvantages of Internet
➢ It is expensive to maintain the website
➢ Needs specialised equipment (computers) to access the information
➢ May have limited coverage in certain countries
12) Computers
Computers are used for storing and providing of information.
Information in a particular topic can be produced on a visual display unit (VDU) that is like a television
screen within seconds. Computers are used in all fields such as construction, medicine, the law, science,
economics, accountancy, and commerce. Sooner or later there will be no office without a computer.
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ADVERTISING.
INTRODUCTION
Advertising is a French word which means “bring to notice”. Goods and services produced must be made
known or be brought to the attention of the general public, thereby promoting and maintaining the
manufacturers’ market for the products.
What is the purpose of advertising?
Aims of Advertising
• to increase the sales
• to widen/increase the market
• to maintain the good will of the business/favourable image of the
business
• to educate the general public on the new and existing products
• to inform the general public on the nature of the goods and where the good are found and at
what price.
• to introduce or launch new products on the market
• to persuade the general public to buy the product or change their brand
• to keep/maintain the brand name in the minds of the public
• to sustain or create demand for the product
• Remain competitive
• Achieve market penetration
• Increase market shares
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Other purposes for which advertising might be used for apart from increasing sales
- making announcements in the change of business premises
- death of an employee/termination of employment
- warning customers of a faulty product/withdrawal of a product
- calling for an Annual General Meeting
- Declaration of dividends paid and financial statement
- To make government announcements such as national insurance rates or change of the
school calendar by the Ministry of Education and new tax charges.
- To make public announcements such as legal and company notices and announcements to public
by Zesco of mass electricity disconnections and load shedding
- Advertise national campaigns e.g. road safety, health campaign against HIV/Aids.
- To advertise new jobs and vacancies
- To announce births, deaths, marriages, charity appeals, lost and found property etc.
METHODS OF APPEAL
Advertising must be effective to reach the intended people and it must be appealing to them, and cost less in
relation to the anticipated sales. To achieve this, the following method of appeal must be used:
Personality
famous people may be shown using a product in the advertisement such as Dr Kenneth Kaunda and Cherise
to give the product/service an acceptable image (Colgate and Ditto)
Types of Advertising
A. Information Advertising
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B. Persuasive Advertising
• This tries to induce the consumer to buy, by the use of certain key words, models or ideas
• It aims to create in the mind of the consumer pleasant association with product
• For example the use of female models to advertise cars and tobacco makes appear that buying such
goods the consumer will be able to attract the opposite sex.
• It can be instructional or product oriented
• Also the advertiser may use a good personality so that there is the implication that if you buy it you
will be as successful as the famous person advertising it.
• Advertising slogans are usually used to persuade the public to buy.
C. Collective/Generic Advertising
• It is where a group of organizations in the same trade or industry join together to advertise the
product for mutual benefit instead of competing with each other.
• They promote a product in general terms.
• For instance, the advertisement could be arranged by a Marketing Board, Tourist Board.
• Examples would include the advertising of eggs, milk industries, insurance companies and banking
institutions.
Why many companies who use collective advertising find it essential to use competitive advertising
• to defeat competitors
• to sell more goods
• to earn greater profits
• to give information on new products
• to obtain greater market share
• to emphasise own particular products
• to make use of other media
• to target different markets/market segments
• may not believe collective advertising is effective
Competitive Advertising
• This is undertaken by an individual company/competitors usually promoting it’s own product.
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• By brand name
• Against similar products of competitors
• The product is highly high lighted as the most outstanding
• For example Uni-Lever South East Africa may advertise its products as the most outstanding ones.
How can a manufacturer of breakfast cereal whose products are well known justify the expense of a
national advertising campaign?
• The manufacturer of breakfast cereals must continue to advertise his well-known products because:-
• The manufacturer must keep his products before the public
• To keep them informed that the products are still available
• Otherwise the public might buy his competitor’s goods, which were continuing to the advertised.
• It is also necessary to persuade new customers to buy the manufacturer products in preference to
their existing brands.
• A national advertising campaign is necessary because breakfast cereal is a family product nationally
distributed and formed in most households.
• It is therefore necessary to reach most consumers in the country.
Why it is necessary to control advertise standards or protect consumers from some forms of advertising?
• Advertisers may attempt to mislead or deceive customers in an effort to improve sales.
• And may make untrue statements/false
• Some advertising may undermine social standards.
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• The Trade Description Act 1968, the Misrepresentation Act 1967 and the Theft Act 1968 provide
some control over untruthfulness in advertising.
The Government
May also place control on advertising
For example, it places a Government health warning on all cigarettes packets sold, like tobacco is harmful for
your health
Advertising Media
A channel for communicating advertisement
Factors which would influence the choice of media
The factors which would influence the choice of media are
• what type/ class of person will buy the product (i.e to what type of person is the product aimed (Target group).
• What area is to be covered by advertising campaign i.e Extent of Market
• What type of the product i.e nature of the product (some must be demonstrated)
• How much is the advertising budget for the campaign (how much can the company afford e.g T. V expensive.
• What profits are expected from the sale of the product (cost of advertising must be covered)?
3. Television
• it reaches a wide range of customers
• Visual impact as well as sound( Easy to remember what you see and hear)
• It shows (demonstrated) visually) the usefulness of the product, its quality and how it is used.
• It can be shown or appropriate times for housewives/family
• It is very expensive
• Not always well received by the viewing public
• it is very expensive
• it is not always well received by the viewers
• they tend to be short lived and may not produce a long lasting impact
• they are very few television sets in rural areas
• not all the places have television signals
• some people may take them as entertainment
• they may be submerged in a large number of others if not well planned
4. Radio
• Reaches a wide range of customers, even people in remote areas in the country.
• Many people own Radio
• Cheaper for the producer to advertise on Radio
• Advertisements are broadcasted at various times during their programmes transmissions.
• Advantages of radio advertising
• it has the widest coverage
• many people have access to the radio
• radio signals reach almost everywhere, including the remotest place
• many radio stations are now available, this provides an opportunity to target a particular ethnic group
• repeated adverts are possible
• the specific audience can be targeted at specific time/language
• it is cheaper than television
• it has a lasting impression through catchy tune or jingle
5. Window Dressing
Designed to attract consumers into a retail outlet
And keep their attention to buy goods when inside the store.
6. Free samples
Are often given to advertise a product which is new on the market
For example a brewery may allow its customers a free first point of a new beer to persuade them to buy more of it
afterwards.
7. Posters
Can be seen on hoardings everywhere
Persuades and informs the local people or community
Local people can afford the type of media
Cheaper than any other forms of media
They convey the message visually to passers by
Advertisements can be placed on bill boards or on sports stadium headings.
8. Leaflets/Hand Bills
Can be handed out by advertisers
Normally done by local advertisers such as by a hairdressing salon showing reduced prices
May be cheaper than either television or Magazines
Not permanent
9. Plastic Bags
Can be printed with the name of a firm and given away with each purchase.
This is a cheap form of advertising.
10. Clothing
Manufacturing will often print their name or symbol in a prominent place for every one to see
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13 Trade exhibition/fare
BUSINESS UNITS
By Business Units we mean the way businesses are owned and operated. These are determined by the way they raise their capital,
ownership, control and objectives. Zambia is a mixed economy, this means that it has both privately owned businesses (the private
sector) and state owned industries (the public sector).
The following are the various types of business units
1. Sole trader
2. Partnership
3. Private Limited Company
4. Public Limited Company
5. Public Corporation
6. Co-operative
7. Holding company
1. Sole Trader
CHARACTERISTICS OF A SOLE TRADER
- It is owned and contrlled by one person
- Owner raises the capital to operate the business from personal savings or from borrowing from relatives of friends.
- This is therefore a difficult way to raising capital
- The owner manages the business without assistance from his employees
- He can therefore make any independent decisions and changes any time he wants to.
- All the profits go to him (sole proprietor) and has to bear all the risks or losses.
- There is no legal distinction between personal property or the owner or the business and the assets of the business(has no
separate legal entity).
- As a result in such a business the owner has unlimited liability
- Meaning that if the business owes money to a lot of people such that money from the business can not be enough to repay,
the can go to the extent of selling the personal property in order to recover the money.
- The sole proprietor does not pay company tax but personal income tax.
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Partnership
- A partnership is merely agreement, usually in writing by means of which several individuals trade together with view of
making profit. A written arrangement usually take the form of Articles of Partnership or Partnership Deed
Partnership deed
This written agreement is known as a partnership deed and it staes the following:
- The names of the partners
- The name of the business
- The amount of capital each partner contributes
- The ratio in which partners are to share contributes
- The ratio in which partners are to share the profits/losses
- Also the rate of interest payable on capital e.g. 6% of each partner’s capital
- The duration of the partner ship.
- The amount each partner may withdraw for private use
- The manner in which the accounts are to be kept and audited.
- Whether any partner is going to receive a salary or not
- The rights of each partner
- The procedure of admittinf a new patner
- In the case of disputes how shall they be resolved
Types of Partnership
- the two types of partners are
Ordinary Partnership
- All the partners in this partnership have unlimited liability i.e. they all stand to lose their personal property in case of business
failures.
- In this partnership each partner has equal powers and responsibility
- Each partner takes an active part in the management of the business.
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Limited Partnership
- The type of partnership in which some of the Partners have limited liability
- This means that the liability or the limited partners is only confined to the amount they have invested in the business.
- However he doesn’t share in the profits
- Although in a limited partnership there must be at least one general partner whose liabilities is unlimited.
- A limited partnership must not be registered with the register of the companies
Types of Partners
- There are three types of partners
Active Partner
- This is a type of partners who take active role in the running of the business and has unlimited liability.
Sleeping Partner
- This is a type of partner who does not take part in the running of the business but has contributed some money towards the
capital and only participates in the sharing of the profits.
Nominal Partner
- This is a type of partner who allows his name to be used in the business but does not contribute money towards the capital
neither does he participate in the sharing of the profits.
Characteristics/features of partnership
- Its has two partners and maximumof 20 membersexcept for professional partnerships who are allowed to be more that twenty
- A partnership is based on a partnership deed.
- A partnership is not a separate legal entity
- Partner usually have unlimited liability
- Controlled and owned by partners
- A partnership ceases on the death of a member(lacks continuity)
- Easy to set up because they are few documentations e.g. partnership deed.
- Accounts of partnership are not made public (they are private)
- Capital is raised through the contributions from the partners
The Advantages of changing from a Sole Trader to a Partnership
- They will have more capital than that of a sole trader.
- Partners are able to raise additional capital more easily.
- The business benefits from the expertise of both/all the partners e.g. one may be an accountant and the other a marketer
- There will be division of labour between/among the partners
- The partners can consult each other (sharing of ideas) in solving problems.
- The overhead expenses may be saved by closing one shop or premises and concentrate on one side.
- Additional savings may be made because duplication of advertising will be avoided.
- There is better utilisation of capital
1. MEMORANDUM OF ASSOCIATION
- This is an application to the registrar of companies that a company may be formed by promoters of the companies. It
relates to the external affairs of the business
- This memorandum is given to the registrar of companies before a company is incorporated
- It states the following:
- The name of the company with the word Ltd or plc after its name
- The objective (aim) for which a company is established.
- The address where the registered company will be situated (Headquarters)
- The statement that the liability of shareholders is limited.
- The amount of capital showing its divisions (shares)
- A statement whether it is private or public
- The number of shares to be taken by each of the Directors.
2. Articles of Association
- it is a document setting out the constitution and regulations (set of rules) of a registered company.
- These rules are drawn up to govern the internal affairs/working of the company.
There rules include:
- the rights of shareholders
- the powers of directors
- the procedure of meeting
- the procedure of dividing profits
- the procedure of dividing profits
- borrowing powers of company
- The issue and transfer of shares
- The method of audit
- the articles of association is then submitted to the registrar of companies.
- The registrar of companies examines the two documents (memorandum of association and articles of associations)
- If the registrar is satisfied, he allows the company to start by issue certificate of corporation.
3. Certificate of incorporation
- It is a confirmation by the registrar of companies that a company can start trading
- It recognizes the company as a separate legal body
- But a public limited company must first issue the prospectus.
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5. Certificate of Trading
- It is authority issued by the registrar of companies to allow the formed company to start the business.
- It has greater borrowing capacity as banks are more willing to lend money to large businesses
- It has greater continuity as the business continues despite the death of a shareholder
- It has separate legal entity from its shareholders
- Shares are quoted on the stock exchange hence greater possibility of raising capital
- They enjoy economies of scale
- It is able to merger or takeover or acquire other businesses
Limited
- This means that the liability of individual shareholders is confined/restricted to the amount they have invested in the business.
- Therefore the shareholders’ personal possessions are not risk
- This protection enables small investors to invest in industries without fear.
- And therefore enables companies to obtain larger amount of capital.
Board of Directors
- These are leaders of the company.
- They control the business
- They are elected by shareholders at the Annual General Meeting
- They appoint the managing director who is in charge of day to day running of the business
- They recommend the rate of divindeds p[ayable to shareholders
Managing Directors
- He is charge of day to day running of the business
- He co-ordinates policy matter of the company
- They are referred to as deferred shares because at times they may not receive the dividends in a given year but will have to
be paid the following year.
2. Ordinary Shares
- These received divident after preference shareholders have been paid
- These receive a variable rate of divident dependent on the profit made
- And have voting rights
- Ordinary shares are more to risk form of investiment than preference shares so it appropriate.
- For example when a company is forced into liquidation, the ordinary shareholders are usually the last in the distribution of
assets.
3. Preference Shares
- These receive divident before ordinary shares.
- They receive a fixed ate of dividends, e.g. 8% of K100,000 preference shares means
8 x 100 =K8,000
100
- Preference shareholders have no voting right at the A.G.M. therefore have no say in the running of the company.
- In the invent of business failure, they have the first claim in the distribution of company assets.
- Prefrence shares may be participating preferences shares or cumulative preference shares and redeemable preference shares.
Participation Preference Shares
- These have the right to claim in the excess profits
- They are able to receive a bonus from profits made in a good trading year.
- They receive such bonus fter payments have been made to all types of shares.
1. Debentures
- These are a long term loam to a company which receive a fixed rate of interest
- This fixed rate of interest is payable to debenture holders whether profits are made or not.
- Debenturs holders are creditors to a company
- They have no voting rghts because they are not shares and have no say in the controlling at the business
- And usually they may have to be secured against assets.
- Debenture holders can force the company into liquidation take over and sell the business if the company fails to pay interest
or repay capital.
Trade credit might be used as a source of finance for the firm by:
- by allowing the firm to purchase goods without immediate payment for them.
- by allowing the firm to sell goods at increased price before payment.
- by allowing the firm to pay for goods from the sales revenue.
Leasing of Equipment
- this is where company property is mortgaged.
- Many legal requiremnet to set up a private limited company e.g. memorandum of association aand Articles or Association
whilst with a partnership it is easy to up few documents required e.g. partnership deed.
- A private limited company has more capital and have borrowing capacity whilst partnership lack capital and borrowing
capacity to expand.
Multinational Companies
These are enterprises which have subsidiaries or branches in many countries. They are usually Public Limited Company. Examples
includes shoprite, BP (Z) Plc, CocaCola Bottlers, First Quantum Minerals (FQM) Plc, Unilever South East Africa, PEP Stores, Shoprite
checkers etc. They provide employment to the host government and they are a source of income to the host government, hence they
are welcome by most of the countries. Their decision making is controlled by the head office where the parent company is and
implement to all the subsidiaries.
Public Corporation
These are state owned businesses and they are referred to as nationalize industries. It can either be controlled by either the central
or local government for conducting business for the benefit of its citizens. It is set up by an act of Parliament.
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- In a public limited company, profits are distributed to share holders as dividend as for a public corporation, profits are used
for improvement of infrastructures.
- For a public limited company, capital is raised through sale of shares to the public whilst in a public corporation capital is
raised through government grants.
- In a public limited company board of directors are elected by the shareholders whilst in a public corporation board of directors
are appointed by a minister in charge of a ministry.
- Board of directors control the working of public limited company whilst parliament investigate the working of corporation
through select committees.
- The public limited company is set up by a minimum of two shareholders whilst the corporation is set up by an act of
parliament.
- The motive of selling up the public limited company is to make profit while that of a public corporation is to provide service.
The money invested in abusiness is called its capital. It includes everything that is used in the business
from the money used to set it up to the labour hired and equipment purchased to help run it. The capital of
a business consists of fixed capital and working capital.
1. Fixed Capital
Fixed capital is the money usd to buy fixed assets i.e. items which are bought to be used permanently over
a period of years and which enable the business to run. Fixed assets do not form part of the end product or
they are not for general sale. They include land, buildings, machinery, furniture, office equipment, and
motor vehicles. All these are used to enable production to take place or to enable business to generate
profit.
2. Working Capital
Working capital is the money which a business must have available to meet its day to day expenses such as
paying workers’ salaries, buying raw materials or stock, paying water, electricity and telephone bills, and
so on. It also includes money owed to the business by customers and balance (as well as cash in the till).
Working capital is, in fact, th amount by which current assets exceed current liabilities. It can be calculated
by the formula:
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The word current here means short term. That is to say, the assets and liabilities are constantly changing,
for example cash, stock of goods and or raw materials, and the like.
Adequate working capital is important because it is what enables the company to pay its creditors promptly
and buy or replace stock easily without looking for further financial assistance. Lack of working capital
will not only restrict expansion but may push the business into insolvency, closure or liquidation.
3. Capital owned
This is the total amount that the business owes its owners. It is a measure of the net worth of a business. It
is calculated as assets minus external liabilities. Capital owned can be increased by a company making a
profit and decreased by the company making a loss.
4. Capital employed
The capital employed is the sum of the company’s assets, both fixed and current that the company has
invested, whether borrowed or not. It is in fact, the amount of wealth or assets which are being usedin the
company to earn income. It is calculated as: Total assets minus debtors.
5. Liquid capital
This refers to thoose assets, such as cash at bank till and any assets that can be easily converted into cash
e.g. stocks and bonds held by the business.
The sole trader and perhaps a partnership will raise capital from personal savings, borrowing from
commercial banks as well as from friends and relatives. A limited company, especially a public limited
company, however, has many more sources of capital some of which are given below.
2. Debentures
These are not shares but long-term loans given to the company by the investing public. They may have to
be secured against some assets. A company wishing to raise extra capital can borrow money from the
public and issue them with stock certificates showing the loans. What this means is that the company sells
debentures. They may be issued for a fixed number of years after which they are redeemed.
It should be made clear that debentures are loans for which a fixed rate of interest is paid (to debenture
holders) whether the company makes a profit or not. If the company should be liquidated, debenture
holders are repaid first before the shareholders can get anything. Debentures are, thefore, a safer means of
investing in a company and can bring assured returns if they are issued by profitable companies.
3. Loans
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The traditional way of raising capital is by applying for a loan. A loan from commercial banks, insurance
companies and other financial institutions can be very vital to a business. Loans are usually given for a
specific purpose, mainly for the purchase of capital items and are repayable by instalment with interest.
4. Overdrafts
These are givnen on a current account to help the company or business meet its day to day expenses. It is
normally given for short term needs only and interest has to be paid on fluctuating daily overdraft balance.
After spwnding large sums in establishing the capital items necessary for production to take place, a
company may find itself short of working capital. It can then obtain an overdraft to help run the business,
i.e. by stock, pay bills and salaries and so forth.
When a company makes a good profit, it may decide not to distribute all of it to the shareholders and
instead retain some of it and reinvest it to expand the business. The company can also keep some of its
profit as a reserve to cater for emergency or difficult times.
6. Trade credit
A retailer who has little working capital can approach the supplier and obtain stock on short term credit.
Getting supplies on credit means the retailer takes the goods and pays for them a few weeks later after
selling them. This helps to increase the retailers’ working capital, as the goods would be paid for from the
sales revenue generated.
Leasing enables a company to acquire up-to-date equipment or machinery without the large amounts of
money needed to buy it cash. Lease agreement eneables a firm to obtain equipment by paying a monthly
rental fee which includes maintenance. At the end of the lease period the ownership is usually transferred
to the company.
8. Factoring
This enables a company to sell goods to customers on credit and then sell their invoices to a finance
company at less than the full amount. For example, a furniture dealer like Supreme Furnishers may sell a
lounge suite to a customer for P1000 on credit and take the invoice to a finance company and get P900 for
it. In this case, Supreme Furnishers gets its money immediately, leaving the factor to collect the amount
outstanding and deal with any possible bad debts.
Another sources of capital to a business is the grants offered by the government. For example, the
Financial Assistance Policy (FAP) in Botswana, which provides firms a certain amount of money, to help
them set up a manufacturing business in the country, has been very helpful to many companies.
Mortgaging refers to getting a loan from a financial institution and offering the company’s assets such as
buildings and or land as security. It is also an important souce of capital.
Buying vehicles or equipment on hire purchase or credit can also relieve the company of financial
problems. The firm will pay a deposit and get the goods and then pay the balance outstanding by monthly
instalments over a period of 2 to 5 years. The advantage here is that the company spreads the costs of the
item over a numbr of years hence lessens the financial burden.
There are many reasons why a firm may need additional capital. It could be to finance it expansion or to
upgrade or modernise its operations. But, whatever the reason, before a business chooses which method to
use to finance its projects the following factors need be considered.
• Interest rates
• Amount of finance repayment
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The capital of a limited company is raised by selling shares or debentures. The total amount of money that
a limited company is allowed to raised through issuing shares is called authorised capital. This may be
issued in stages as and when the company wants extra capital. The actual amount of capital which has been
raised and paid for at any one time is called issued capital.
Authorised capital
Shares Debentures
A share is a unit of a limited company’s capital. When a person buys a share in a company he/she is given
a share certificate showing the number, value and type of share he/she owns. He/she then becomes a
shareholder, in fact, a part-owner of the company. This is because limited companies are owned by
shareholders. Buying a share in a company is an investment the reward of which is a dividend or a share of
any profits made by the company. The market where shares are bought and sold is known as the stock
exchange.
A share is a unit of a limited company’s capital. When a person buy share in a company he/she is given a
share certificate showing the number, value and type of share he/she owns. He/she then becomes a
shareholder, in fact, a part-owner of the company. This is because limited companies are owned by
shareholders. Buying a share I a company is an investment the reward of which is a dividend or share of
any profits made by the company. The market where shares are bought and sold is known as the stock
exchange.
In general there are two types of shares namely, ordinary shares and preference shares.
These are shares which receive variable rates of dividend dependent upon the profits made. They normally
get dividends after the preference shares have already received theirs. Ordinary shares have voting rights.
This is possibly because ordinary shares are a more risky form of investment, so it is appropriate for their
holders to be responsible for all decision making in the company. Anyone who holds a majority of
ordinary shares controls the company because each share has one vote at annual general meetings.
If
The company fails altogether, the holders of ordinary shares will only be paid after all the debts of the
company have been paid. In exceptionally good years, when good profits are made, however, ordinary
sharholders may get more dividends than preference shareholders. All companies issue ordinary shares.
These are shares which receive dividend before the ordinary shares. They get a fixed rate e.g. 10%, which
means when the company makes a profit each preference shareholders gets a dividend equal to 10% of the
value of shares they hold. Preference shares have no voting rights at annual general meetings. By selling
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preference shares a company can raise capital without the exisiting owners losing control over it. There are
four main types of preference shares and these are:
• Cumulative preference shares These preference shares get a fixed dividend every year. If in one
year no profits are made, they are paid ina rrears in the next year when profits are made. But even if
the company makes a very big profit, they receive no more than their fixed rate of return.
• Non cumulative preferenceshares These type of preference shares do not have any right arrers of
dividend. So if the company makes no profit this year, they get nothing and the next year the
company makes a good profit they will still get their fixed amount and nothing else (even if better
than usual profits are realised.)
2. Debentures
When a company wants to raise additional capital it can ussue debentures. A debenture is a loan given to a
company on which a fixed rate of interest must be paid whether the company makes a profit or not. It is
nothing other than a ceritificate showing the amount of money lent to the company and the interest that
must be paid on it. In case the company is liquidated, debenture holders must be paid before any of the
shareholders are. The main features of debentures are that:
• Naked debentures are the ones issued without any property or security pledged against them. They
are not very secure.
• Mortgaged debentures have some property pledged against them. They are more secure and if the
company is liquidated, the proceeds of the sale of the pledged property are used to pay off the
holders.
• Redeemable debentures are usually issued for a fixed period of time and can be bought back by the
company. This means the amount borrowed against them is repaid by the company possibly after the
expiry of the fixed period.
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• Irredeemable debentures can never be bought back. The money borrowed against them remains
outstanding until the company is liquidated. The holders of irredeemable debentures keep getting
interest against their debentures indefinitely.
(b) Differences between debentures and shares
Debentures and shares are fundamentally very different.
• A share is a unit of capital whilst a debenture is a loan borrowed from members of the public.
• A shareholder is a part-owner of the company and may vote but a debenture holder is a creditor and
has no voting right.
• Shares a re paid dividends when profits are made but debentures are paid interest, whether or not the
company makes a profit.
• Shares are usually irredeemable although they may be transferred, whilst debentures are redeemable
as they are oloans.
• When a company is liquidated, debenture holders are paid only the face value (plus any outstanding
interests) of the debentures held. But, if more money is raised by the sale of assets shareholders may
get more than the face value of their shares.
• The interest paid to debenture holders is fixed but dividends paid to especially ordinary shareholders
is variable.
E. Business Calaculations
• if the firm is to calculate and make available to owners details of the value of the fime and profits
made;
• if managers are to effectively control the firm and plan its future developments;
• so that tax can be assessed (both income tax, corporation tax and value added tax);
• to meet the provision of the Company’s Act 1980, which requires that a company’s account be filled
in the company registration office annually.
1. Profits
Profti is the reward for doing business. The business person takes the risk of manufactuirn something or
providing some service so as to get profit. The profitability of a business can be looked at from the point of
view of either gross profit or net profit.
Gross profit is the differences between the cost of goods sold and the proceeds from their sale. Put simply,
gross profit is selling price minus cost price. Gross profit is not the true profit since the expenses incurred
in selling the goods have not been taken into account. It is calculated as:
For example: If a trader buys a bicycle at P100 from the wholesaler and sells it at P145 the difference is
his/her gross profit.
The price at which the trader bought the bicycle is called cost price. (C.P) and the price at which the trader
sold the bicycle is called the selling price (SP.). The gross profit is calculated as follows:
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This is the true profit obtained from trading. (In other words, it is the real reqard of the trader). It is the
amount left after allowances have been made for all expenses such as rent, salaries, storage, insurance,
water, telephone and electricity bills, advertising, transport etc. Net profit is very important since it
In our example above, suppose all the expenses amount to P15, the net profit would then be calculated as
follows:
When gross profit is expressed as a percentage of cost price it is called profit mark-up but when it is
expressed as a percentage of selling price it is called profit margin.
To use the same example as above, let us say, a trader goes to the wholesaler and buys a bicycle at P100
and sells it at P145, the difference being his/her gross profit.
You arrive at profit margin by adding the numerator to the denominator while using the same numerator.
When margin is given you do the opposite (i.e. subtracting the numerator from the denominator).
The calculation of gross profit shown above assumes that the trader buts only one commodity, the bicycle.
In practice traders, usually buy several types of goods. Also at the beginning of the year there could have
been some old stock of unsold goods carried forward from the previous year. The stock at the beginning of
the year is called opening stock and the stock of goods lying unsold at the end of the year is called closing
stock.
Therefore, in practice, to calculate the gross profit you have to sum up the total value of goods sold during
the year, called Turnover. . You can do this following the steps given below.
(ii) Determine the total value of goods bought during the year.
(iii) Find out if any goods were returned to the supplier during the year.
(iv) The difference between (2) and (3) is called Net purchase of the year.
(v) Add (1) to (4) i.e. opening stock to net purchases to get the total value of goods available for
sale during the year.
(vii) Subtract (6) from (5) i.e. closing stock from the goods available for sale, to get the final cost of
goods sold during the year. This is called the “Cost of Sales”.
(viii) Calculate the gross profit i.e. Net sales minus cost of sales.
SUMMARY
• Cost of sales = Opening stock plus net purchases minus closing stock.
• Net Sales = cost of sales minus gross profit.
• Gross profit = net sales minus cost of sales.
• Net profit = gross profit minus expenses.
• Expenses = gross profit minus net profit.
2. TURNOVER
The turnover or net sales is the net value of goods sold during an accounting period. It is calculated as
follows:
Turnover = Sales minus Returns inwards OR Turnover = Sales minus Cost of goods sold plus gross profit.
This is the cost price of goods that have been sold. It is calculated as:
Cost of goods sold = opening stock plus net purchases minus Closing stock or;
Cost of goods sold = Turnover minus gross profit.
This is the number of times the average stock can be sold in an accounting period. (It is actually the
number of times a firm orders and sells out its stock each year.). It is calculate as follows:
5. Average Stock
This is the average number of stock held in the business for the accounting period. It is actually the
average of the opening and closing stock. It is calculated as:
This net profit percentage shopws actual average profit made adter taking into account all costs and
expenses incurred. It is also known as the net profit percentage of turnover. It is calaculated as:
The rate of return on capital invested is extremely important to a businessman or woman for it tells him/her
exactly how much he/she is getting from the investment. It is calculated as:
This ratio helps the businessman or woman to determine the probability of his/her business. He/she is thus
able to decide whether it is worthwhile or not to keep his/her money in that investment.
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9. Mark up
This is the percentage of gross profit to the cost of goods sold or the percentage of profit to cost price. It is
calculated as follows:
10. Margin
A balance sheet is a statement of the financial position of the business or an individual at a given time. It
shows the company’s assets and liabilities. It is usually drawn a tabular form as follows:
ASSETS LIABILITIES
Buildings Capital
Shop fittings, vehicles, machinery Bank loan
Stock (raw material/goods) Creditors
Cash (at bank and in till)
TOTAL TOTAL
The balance sheet equation can be written as Capital = Assets minus Liabilities.
The balance sheet of a firm shows the financial position at a particular date. It gives the summary of its
reserves, capital, liabilities and assets.
(a) Assets
These are the properties of a business. Assets can be divided into two: fixed assets and current assets.
Fixed assets are the properties, of a business, whose values do not change from day to day, e.g. land,
buildings, equipment, etc.
Current assets are the propertis of a businesses or individuals and can be divided into fixed or long – term
liabilities and current liabilities.
(b) Liabilities
This is money owed by a firm to other businesses or individuals and can be divided into fixed or long-term
liabilities and current liabilities.
Long term liabilities are amounts which have to be repaid over a number of year, for example, a ten year
loan or mortgage on premises.
Current liabilities are short term and have to be paid in less than a year’s time, for example, creditors (i.e.
goods or stock obtained on credit).
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When a company makes a profit, its capital increases, especially if it is reinvested in the business. A loss,
however, represents a decrease in capital and may eventually lead to the closure of the company if it
persists.
STOCK EXCHANGE
(a) Describe the functions of a stock exchange and ex[plain its importance to investors
(b) Expain the role of :
(i) stock broker
(ii) dealers on the stock exvhange
© What are the functions of the stock exchange council?
(d) What factors determine the price of shares on the stock exchange?
(e) What are the functions of the contract note on the stock exchange?
• Stock exchange approval gives indication to the investors that the company quoted is reputable.
• It provides a pace where people with savings can invest and lend those companies that need to raise finance.
• Prepares reports and data concerning all organisation on the Stock Exchange
• It establishes a code of conduct which members of the stock exchange must follow.
• Enable government to raise funds.
• Gives savers opportunity of investing in industry and commerce.
• Regulates members of the market
• Provides rules to protect investors against fraud.
• Enables transfer of second hand securities.
• Provides place where prices can be determined freely on basis of supply and demand.
• Vetting companies applying for stock exchange quotations/listing.
(b) (i) The Work of the Stock Brokers on the Stock Exchange
Because members of the public are not allowed to trade on the stock exchange:
• the Stock broker acts as agents, buying and selling shares on behalf of the general public.
• They try hard to obtain the best possible prices for their clients
• The brokers compare prices in the market and usually buy and sell acording to their clients’ instructions
• They prepare a contract note setting out the amounts to pay or receive their commission.
• The arrange for share certificate’s or stock transfer forms to be dealt with.
• The broker advise their clients on matters relating to market conditions.
(d) Factors that Determine the prices of Shares at the Stock Exchange
• To supply and demand for the shares • Recent performance of the company
• Political changes in the country e.g. change of • The popularity of the company’s product
government • The general prosperity of the country
• Changes in interest rates or taxation • Changes in market trends
• Strike/industrial disputes in the company
• Take overs and merges being considered
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