location, changes in price and quality, opening of branch, etc. An example of
such notice is given below:
Notice
On the auspicious occasion of Dashain and Deepawali, we are pleased to
announce that 20% cash discount is offered to our valued customers in
every purchase of our product.
Samsung Mobile,
Authorized Dealer, Nepal
vi. Government notice: All notices issued by the government for giving
information to the public, individuals or any concerned office or institutions
about the government activities are known as the government notices. An
example of such notice is given below:
Notice
It is to notify the public and all concerned that use of seat belt while
driving is compulsory for safety measure. So it is punishable if you are
found driving without tying the seat belt.
Ministry of Transportation
Government of Nepal
Circular
Circular is a mass communication tool. The information disseminated through circular
will be of interest to all or a section of employees or groups related to the office.
When a senior officer has to send the same information to more than one subordinate
employee simultaneously, he uses the circular letter. A circular letter is called a circle-
making letter because it revolves around several offices of the same department.
Therefore, a circular letter is that kind of letter which is written to different officials on
a singular matter and for the fulfillment of the same purpose. Generally, it is written
by central level office to its branches, departments and sections asking to do or not to
do a certain task.
In their form and nature the circular letters are totally official, but there is a slight
difference. The personal name or the designation of the sender is not mentioned in
the circular letter. Normally these letters are printed. Sometimes, three lines are left
for the address in which the designation of the officer receiving it is written, if needed.
Normally, the officers of the government use the circular letter when the subject is of
public concern.
Office Practice and Accounting 9 47
Circular can be divided into two parts
i. Direct Circular: Circular directly sent to the branch offices from the authorities
is direct circular. For e.g., circular issued from Ministry of Forest to District
Forest Offices.
ii. Step-wise Circular: When a circular is sent to different levels, it is known as
step-wise circular.
For e.g., circular issued from Ministry of Forest to Regional Forest Offices and
Regional Forest Offices to district forest offices.
Nepal Electricity Authority
Central Office, Kathmandu
Ref. No. Date:..........................
The ……...........………….
............................................
It is decided to use e-attendance system for the purpose of better records
of employees in every office effective from…………… as per the meeting
held on…….. So kindly ………..
Nepal Electricity Authority
Central Office
Mandatory Order (Tok Aadesh/tf]s cfb]z)
Mandatory order is an official order issued to lower level officers and sub-ordinates
by higher level authority. If a message is conveyed as a mandatory order, it means
that it carries a stamp of authority with it and has to be accepted to do or not to do
something. Getting of the mandatory order refers to the compulsion to take action over
such matters by the lower level staff and such order may become the rule for taking
action in the future. It is a direct order made by the head of the office or department
to the lower level or sub-ordinates. It is common and often practiced in government
offices in Nepal.
Nepal Bank Ltd.
Central Office, Kathmandu
Date: …………… ………….
All employees are hereby directed to visit the office canteen only during the
lunch hours 1:00-2:00 pm. During the rest of office hours, if the employees need
tea, cold drinks and snacks, they can order the canteen to get them at their seat.
Copies to:
All departments.
Ramesh Shrestha
Manager
48 Office Practice and Accounting 9
EXERCISE
Give very short answers to the following questions.
1. What is meant by correspondence?
2. Why is quotation letter written?
3. Define government letter.
4. What is darta?
5. Name two types of circulars.
6. What is meant by direct circular?
Give long answers to the following questions.
1. What is a letter? Explain the qualities of a good letter.
2. Define correspondence. Describe its importance.
3. What is a notice? Explain the types of notice.
4. What is handling of mail? Explain the procedures of entry and dispatch of mail.
5. Define circular. Draft an imaginary circular of a government office.
6. Write an imaginary order letter to a book seller demanding 20 copies of Office
Practice and Accountancy books.
7. Draft an application for the vacant post of an accountant in a company with
resume.
Office Practice and Accounting 9 49
UNIT
4 Record Keeping
Learning objectives:
After the completion of this unit, students will be able
to understand:
• meaning and definition of record keeping.
• importance of record keeping.
• types of records.
• principles of record management.
50 Office Practice and Accounting 9
4 Record Keeping
Introduction
In every office, hundreds of different kinds of transactions take place daily. In order
to run the business in a systematic manner, it is essential to keep a record of all these
transactions. The material and the data prepared for future reference is known as
record. Record includes the written letters, documents, correspondence, booklets,
illustrations, forms, work details, etc. In modern times, it is very necessary to prepare
records and to look after them carefully. Management of any organization is run on
the basis of different types of information and facts. This information and facts can
be obtained only from the records. Therefore, if no record of information and facts is
maintained, it becomes difficult to run an organization properly.
Record management
Record management is an important function of office management. Organization
needs to create, receive, preserve and maintain the increasing volume of records with
proper disposal system. An office must preserve and retain the records properly for
the future reference. These activities are only possible through record management.
Record management includes forms, reports, reproduction of written material, filing,
record retention, micro filming and related services.
Record management in its boardest sense concerns itself with the records
creation, distribution, maintenance, retention, preservation, retrieval and
disposal. S.P. Arora
Records management can be described as the management control of records.
- Littlefield
Objectives/Purpose of records management
There are four major purposes of records. They are:
1. To keep an orderly account of progress: By writing and preserving various
papers, documents, memoranda of different types of transactions (financial
as well as non-financial), the progress of organization is recorded. This can be
described as the historical function of records.
Office Practice and Accounting 9 51
2. To prepare statement of true conditions: The true condition of a business can
be known through up-to-date records. This is necessary to make the necessary
changes in business plannings and strategies.
3. To make comparison: Records help make comparison of the following types:
i. Comparison between one period of time and another
ii. Comparison between different product lines and
iii Comparison with firms operating in the same line of business.
Such comparison can be described as the analytical function of records which
has become very important in today’s business.
4. To detect errors and wastes: Errors and wastes can only be known with the
help of proper record management. Record management is a control function
which helps evolve techniques to eliminate errors and wastes.
Importance
Record management has the following importance:
i. Basis for future planning: It is only one basis of the records that future
activities of the organizations can be planned. Records are the basis for future
reference. Planning and policy making are based on records.
ii. Fulfill legal needs: Records act as evidence in settling disputes, legal and
court cases. Record management provides history of records which are essential to
meet legal requirement of an office.
iii. Helps in decision making: Decision making is the most important task in
an organization. A single decision can change entire path of the organization. Past
records are the important tools for decision making. No management can take right
decision without necessary facts. So, record management is helpful in taking prompt
decision in an office.
iv. Detection of errors and wastes: Errors and wastes can only be known with
the help of proper record management. Record management is a control function
which helps evolve techniques to eliminate errors and wastes.
v. Reputation of organization: A good record management provides essential
records as per requirement to take quick decision and prepare plans and policies
which helps to increase the reputation of the organization.
Types, use and disposal of records
The records should be destroyed after they lose their utility. Documents have their
certain retention period. After the expiry of such period, they should be disposed
52 Office Practice and Accounting 9
off. Records disposal is concerned with destruction of unnecessary records. If there
is no system of disposing dead records, it will increase the cost of an office. So,
management should make clear policy about the disposal of records so that valuable
records are better preserved. Dead records are disposed off as per the provision of
"Record Disposal Regulation Act 2027" in the government offices of Nepal. According
to this provision, the records are classified into following four types:
1. Very important records: These very important records are also known as
permanent records. The records which are to be preserved forever or at least
15 years of time are called very important records. They include the documents
related to legal action, international treaties and border maps, trade agreements,
peace and security related documents, etc.
2. Important records: The records related to general or financial administrations
which are to be preserved at least 5 to 10 years are called important records.
They include invoices, outstanding bills, sales records, accounting statements,
financial sheets, audit reports, etc.
3. Useful records: The records having temporary importance which are to
be preserved for maximum 1 to 5 years from their creation are called useful
records. Such records are useful only for a short period of time. They include
ordinary letters, banking statements, inter-office notices, annual budget record,
etc.
4. Useless records: The documents which are created for general communication
purpose and are not repeatedly used in future fall under this category. Such
records have no future value and become useless immediately after they are
created. They include invitations, greetings, condolences, return receipts etc.
Principles of record management
i. Principle of classification: Records must be properly classified for use because
unclassified facts are masses of confusion. Records can be classified according to use,
subject and chronology as per need and nature of the organization. Classification of
facts helps in proper analysis of activities of organization.
ii. Principles of purpose: The records are to be kept with some purpose in view.
It is an unsound argument that recording of all types of facts may prove useful for the
organization one day. Records without purpose are a waste of time, manpower and
money. If some records have no purpose, they should never be preserved.
iii. Principle of verification: The facts recorded must be capable of verification
in case of need. For example, if records cannot be verified, they may not serve as good
evidence.
Office Practice and Accounting 9 53
iv. Principle of availability: One of the major objective of record management
is to preserve essential records for future reference. Record must be available when
needed. It is not necessary that all records should be instantly available. However,
records should be available in the shortest possible time. They provide the needed
information on time as per its requirement.
EXERCISE
Give short answers to the following questions.
1. What is record management? Explain its purpose.
2. What is record keeping? Explain any four objectives of record keeping.
3. What do you mean by disposal of record? Explain any four types of records.
4. Explain the principle of record management.
54 Office Practice and Accounting 9
UNIT
5 Postal and Electronic
Communication Service
Learning objectives:
After the completion of this unit, students will be able
to understand:
• meaning of postal service.
• historical development of postal service.
• importance of postal service.
• historical development of postal service in Nepal.
• methods of sending letter through post.
• differences between ordinary and registry letter.
• meaning of electronic means of communication.
Office Practice and Accounting 9 55
5 Postal and Electronic
Communication Service
Introduction
The service provided by post office is known as postal service. Postal service is
delivering letters from various places to the addressee. This is a network of collecting
mails, transporting through buses, rails, flights, and sorting the mails as per destination
and then delivery. The fee for services was on the basis of weight and distance in
olden days. Post offices not only transfer the letters, documents and other parcels
but also provide the telegraph service, rendering of money order service, provision
of saving bank and investment facilities. The postal service is the oldest, cheapest,
easiest, popular, convenient and reliable means of communication. Postal service is
not only the oldest means of communication; it is a basic service easily available to
the people including the most backward segment due to its affordability. As the post
has had the crucial role in uniting the family, friendship and diversity of the country
together, it was the only reliable and dependable means of communication.
Post offices are usually regulated and funded by the government. Postal department
owned by government is rendering postal services in Nepal. Postal department
works under the Ministry of Information and Communication Technology (MoICT)
in its present name which was formed in the year 2072 BS. Previously it was named
as Ministry of Information and Communications (MoIC) in the year 2049. The
Ministry widely covers postal services, telecommunications, Broadcasting, Press and
Information and Film Development.
Historical development in Nepal
Nepal Post is considered as one of the oldest governmental service organizations in
the country, which started postal services formally through the post offices for the first
time in 1878 AD when it was established. It was called Nepal Hulaak Ghar (General
Post Office) when it was established. It was started from Kathmandu for dealing with
letters from the public. After three years of its establishment, Nepal Hulaak Ghar had
expanded to 43 post offices in different parts of the country. Customers had to pay
the postal charges in cash during those days. The cash payment system was replaced
in 1881 after three types of postage stamps of one, two, and three Annas (fraction of
Rupee) value were published and brought into use.
After the termination of Rana regime, with the dawn of democracy in 1951, successive
efforts were made for the expansion and development of postal services. By that
time, there were 124 post offices in operation. Following the emergence of democratic
56 Office Practice and Accounting 9
policy in 1951, this sector received greater priority for its development and expansion,
and this resulted in fabulous increment having 3,997 post offices altogether.
Nepal became member of the Universal Postal Union (UPU) on 11 October, 1956 and
entered to the global network of the posts. In 1974, Nepal signed the UPU Parcel
Post Agreement. Nepal took membership of the Asian-Pacific Postal Union in 1982.
After the restoration of multiparty democracy in the country in 1990, a new and
comprehensive National Communication Policy, 1992 was brought forward by the
government. This policy had accepted the need of autonomous postal authority to be
sharp and effective in the era of globalization and competitive market. Besides, Nepal
signed Postal Payment Service Agreement of Universal Postal Union (UPU) in 2004.
The tremendous growth of modern communication technologies has started affecting
the traditional business of the Post. Now, writing letters and sending through post has
decreased drastically. This caused the reduction in the regular task of postal service.
To overcome this negative effect, Nepal post started to operate other valuable services
such as money transfer, postal saving bank, remittance, tele-center, e-post and the
alike.
Importance of Postal Service
Postal service is not only the oldest means but it is also cheapest, easiest, popular,
convenient and reliable means of communication. The importance of postal service is
explained below.
1. For government: Postal service helps the government in formulation and
execution of plans, policies, decisions, orders, etc. Plans and policies are
prepared at ministry and department level (i.e. upper level) and are executed
at lower level. When plans are made at upper level, they are circulated to lower
level through postal offices. Similarly, suggestions and grievances are sent to
upper level through the same. Besides these, government collects the revenue
from postal services.
2. For individual: Postal service plays a very important role in an individuals
life. To communicate personal ideas, news, views, opinions, messages postal
service provides cheapest, easiest, popular, convenient services. To keep regular
contact at lower cost with relatives, friends and well-wishers postal service is
very useful. Government organizations also make contact to the individuals
through post office.
3. For business: Postal service plays the role of bridge between organizations and
its customers. Communication is one of the most important resources for the
business. A well established internal and external business system helps to lead
the business towards success. Postal service helps a business to communicate its
many messages to its customers, suppliers, government and other organizations.
Written documents and papers which are obvious in business are sent through
Office Practice and Accounting 9 57
postal service. Besides these, postal service also provides small banking and
money transfer facility which aids to foster the business.
Mail service / Methods of sending letters
Mail service is one of the main services of post office that deals with collection of
letters and parcels from the sender to distribute among the receivers. Nepal Postal
Service deals with both inland and international mails. An inland mail is one where
the sender and receiver of the mail reside within the same country. On the other hand,
where the sender and receiver of the mail reside in different countries, it is called an
International Mail.
While sending a written message, the sender can make use of a post card, aerogramme
or envelop. For sending an article in a packet or parcel, a wrapper (thick paper or
cloth) can be used. These are the alternative means of sending any mail through the
post office. The following methods can be used for mail service:
1. Ordinary Letters: Ordinary letters are the letters which are sent for ordinary
matters. Generally such letters are sent to share personal messages, ideas,
opinions, etc. and do not contain very important, urgent and confidential
matters. Official letters containing ordinary matters also come under this
category. A nominal and minimum amount of postal stamp is required for
ordinary letter.
2. Registered Letters: Sometimes we want to ensure that our mail is definitely
delivered to the addressee, otherwise it should come back to us. In such
situations, the post office offers registered post facility through which we
can send our letters and parcels. Registered letters are suitable for important,
urgent and confidential matters. These mails are handed over to the post office
after affixing additional postage as registration charge. On receiving the mail
the post office immediately issues a receipt to the sender, which also serves
as a proof that the mail has been posted. The post office will not accept letters
without complete address on then. To distinguish them from ordinary mail, all
registered mails are stamped as “Registered Post” on the envelop.
Differences between registered letter and ordinary letter
Registered letter Ordinary letter
1. These letters are recorded in post office. 1. These letters are not recorded in post office.
2. Additional postage as registration for letter is 2. Only minimum amount of postal stamp is
charged. So it is a costlier method. required. So it is cheaper method.
3. The post office will be responsible for the 3. The post office may not bear the responsibil-
loss or damage of this mail in transit. ity of these mails in case of loss or damage
in transit.
4. It is suitable for important, urgent and confi-
dential matters. 4. It is suitable for simple and ordinary matters.
5. The post office immediately issues a receipt to 5. Post office does not issue any receipt to the
the sender, which also serves as a proof that sender in ordinary mail.
the mail has been posted.
58 Office Practice and Accounting 9
3 Post card: Post card is the cheapest means of written communication. It is a card
on both sides of which message is written. The postal stamp of the required
value is printed on the card itself. It has a limited space to write the address
of the receiver. While writing on the post card, one important point should
be remembered that, if message is printed in words or picture on any side of
the post card, additional postage should be paid. This type of card is called a
printed post card. Greeting card of post card size on one side of which a picture
or a message is printed is also a printed post card.
4. Aerogramme: Like post card, written messages can also be sent using
aerogramme. This card is sold by post offices and is commonly used for
sending non urgent and ordinary personal messages. Unlike post card, the
written portion of the aerogramme is folded and sealed. It contains the space
for writing name and address of the sender, receiver and limited space for
writing message. Only names and addresses of the receiver and the sender
remain open. As aerogramme is used for sending simple, short and ordinary
message. So post office does not allow enclosure i.e. keeping additional paper
and document in it.
5. Parcel post: The postal facility through which articles can be sent in the form
of parcels is known as Parcel Post. It provides reliable and economical parcel
delivery service. Under parcel post services, parcels of specified size and weight
can be sent across the country as well as outside the country. Postal charges
vary according to the weight of the parcel. Separate postage is to be paid for
inland and foreign parcel post.
6. Book post: Articles in the form of printed materials, printed books, periodicals,
greeting cards can also be mailed as book post. Under book post, envelopes
containing books or documents should only be closed but not sealed. It should
be mentioned on the face of the envelope as “Book Post”. The postage on book
post mails is less than the postage on sealed envelopes.
Meaning of electronic communication service
The method of exchanging information through electronic devices is called electronic
communication services. These are the easiest and convenient means of transferring
communication from one person to another or one organization to another of different
places. The office should use suitable means of communication to pass a particular
message. The selection depends upon the nature and importance of message. Further,
it also depends on availability and suitability of electronic devices in office. Some of
the important means of electric communication are as follows:
a. Electronic mail (e-mail): Email, short for "electronic mail," is one of the most
widely used features of the Internet, along with the web. It allows to send and
receive messages to and from anyone with an email address, anywhere in the
world. It is a message that may contain text, files, images, or other attachments
sent through a network to a specified individual or group of individuals.
Office Practice and Accounting 9 59
b. Internet:Internet is a global computer network providing a variety of information
and communication facilities, consisting of interconnected networks using
standardized communication protocols. It is a global network of information
transmitted to billions of computers and devices. These networks are operated
from various entities, such as education, government and businesses that
follow specific protocols. It is taken as the latest, fastest, convenient, reliable and
cheapest means of electronic communication. The website acts as a connection
between the computer and satellite by which the information and the messages
are received and sent throughout the world. So, Internet is a global wide area
network that connects computer systems across the world.
c. Fax: Fax is one of the popular mediums of communication which allows the
transmission of documents containing both text and graphics over ordinary
telephone lines. It is the device that sends and receives printed pages or images
over telephone lines by digitizing the material with an internal optical scanner
and transmitting the information as electronic signals. It is mechanical process
in which written information is sent and received. For this system two devices
for transmitting and receiving messages are needed. Such two devices are
linked through telephone connection and written message is transmitted. It is
very fast and popular technology, widely used in offices for quick exchange of
written information.
EXERCISE
Give very short answers to the following questions
1. When was systematic postal service started in Nepal?
2. What is a post card?
3. What is a fax?
4. When did Nepal become a member of UPU?
5. Write two differences between ordinary and registered letter.
Give short answers to the following questions:
1. What is postal service? Explain its importance.
2. Write the differences between ordinary and registered letter.
3. Explain the methods of sending letter by post.
4. What is electronic communication service? Mention any three electronic devices
used to transfer the written messages.
5. Explain in short the historical development of postal service in Nepal.
60 Office Practice and Accounting 9
UNIT
6 Business
Learning objectives:
After the completion of this unit, students will be able
to understand:
• meaning and definition of business.
• features of business.
• importance of business.
• concept of business, commerce and trade.
• forms of business organization
- Sole Trading Concern
- Partnership Firm
- Joint Stock Company
- Public Enterprises
- Co-operative Society
- Multinational Companies
Office Practice and Accounting 9 61
6 Business
Introduction
Literal meaning of Business is to be busy in some work or activities. However, every
state of being busy is not called business. In fact, the term ‘Business’ includes all the
human activities directed towards producing or acquiring wealth. It can be defined
as human activity involving production, distribution and exchange of goods and
services with the objective of profit earning. It is a regular process of exchanging
goods and services, which involves risk and uncertainty.
Business, like every other human activity, requires two essentials: a process and
an organization. Process means the methods in which the said activity is pursued.
Organization means the mechanism or machinery which aids the pursuance of said
activity.
According to F. C. Hooper, “The whole complex field of commerce and
industry, the basic industries, processing and manufacturing industries and
the network of ancillary services: distribution, banking, insurance, transport
and so on, which serve and interpenetrate the world of business as a whole
are business.”
According to L.H., Haney "Business may be defined as a human activity
directed towards producing or acquiring wealth through buying and selling
of goods."
According to Peterson and Plowman, “Business may be defined as an activity
in which different persons exchange something of value whether goods or
service for mutual gain or benefits.”
From the definitions above, we can say that business is a form of activity pursued
primarily with the object of earning profit for the benefit of those on whose behalf the
activity is conducted.
62 Office Practice and Accounting 9
Features of business
The important characteristics/features of a business are explained as under:
1. Production and/or distribution of goods and services: All business activities
are, directly or indirectly, concerned with the production and/or distribution of
goods and services. Production and/or purchase and sale of goods and services
for personal consumption free of charge is obviously outside the scope of
business. For instance, if a person cooks at home for personal consumption, it
is not business because it does not involve any exchange of goods and services.
But when a person cooks for others, it is his business.
2. Regular dealings: Any business activity presupposes continuity in dealings.
The exchange of goods and services should be undertaken regularly. One stray
transaction does not constitute business. For instance, if a person sells his radio
set and earns some profit, it does not constitute business. But if he keeps a stock
of such radio sets and purchases and sells regularly, he will be said to be doing
business.
3. Profit: The chief objective of a business is to earn reasonable profit as the survival
of business depends upon its ability to earn profit. Every businessman wants
to earn profits to receive interest on his capital and to reward himself for his
services.
4. Uncertainty and risk: Any business activity involves some degree of uncertainty
and risk. Profit, for which business activity is undertaken, depends not merely
on the efforts of the entrepreneur and his team but also on a number of other
factors not wholly under his control. Thus, it follows that all businesses involve
some element of risk and uncertainty in respect of success of the business.
5. Creation of utility: Raw materials are converted into finished goods, thus
creating form utility. These goods are transported to places where they are
demanded, creating place utility. They are not consumed immediately but
stored for an occasion when they are required. It then creates time utility. Thus
the business creates many kinds of utilities.
6. Satisfying the consumer: The business caters to the need of the consumers.
The goods produced should confirm to the requirements and the tastes of the
consumers and they should be made available where and when the consumers
require. Without satisfaction of the consumers, business cannot exist.
7. Satisfying the social needs: The business has also an obligation towards
the society at large. The modern concept is that business is a socio-economic
institution. Business should cater to the social requirements and avoid social
harms like causing pollution or doing something detrimental to the interest of
the society. Business and public support should go together and it is the social
responsibility of the business.
8. Finance: Business cannot exist without proper financial arrangements. Finance
may be required for a long term as well as for a short term. Finance is required
for providing fixed and working capital. A proper capital structure is a sign for
the success of the business.
Office Practice and Accounting 9 63
9. Organization: Business cannot flourish without an organizational structure.
Business should be done in a planned way and to execute the plan, an
organization is quite essential.
Importance of business
Business is a major element for economic development. If business in society or
country is flourished, it is the indication of economic prosperity of that place. Business
has the following importance:
1. Helps in economic development: Business helps for economic development and
growth of economic standard of a country. Domestic and international business
both are important for economic mobilization. The economic development of
the country largely depends on the proper development of business i.e. trade
and commerce.
2. Resources utilization: Business needs and utilizes various types of resources
such as natural, human, physical and financial resources for the production and
distribution of goods and services. Idle resources are utilized in well flourished
business environment. Due to this, economic mobilization takes place,
employment opportunities are created and as a result, economic condition of
the country is raised.
3. Creates employment: Business is the major source of providing employment
opportunities to the public. Unemployment problems can be solved through
the development of trade, commerce and industry. Creation of different types
of jobs are possible if there is proper development of business.
4. Source of government revenue: Business plays a vital role to increase the
government source. The tax and other charges such as excise duty income
tax, sales tax, etc. paid through the business directly or indirectly are the main
sources of government revenue.
5. Source of foreign currency: Well developed business is the major source of
earning foreign currency. Manufacturing industry, tourism industry and other
firms of business export their products and services to the foreign market
and earn foreign currencies. Any country lowers its international financial
dependency through developed business activities.
6. Increases living standard: Business increases earning of a person and his family.
The increased income has chain effect in the economy. It increases purchasing
power and develops his living standard, which makes life full of comfort and
happiness.
7. Fosters good international relations: No country today is self sufficient.
Every country imports the shortage goods and exports the surplus goods. The
development of industry and trade leads to the import and export of goods.
People of different countries come in contact with each other. It creates co-
operation, understanding and cordial relations among various nations. That’s
why trade relation fosters good human relation among countries and their
people.
64 Office Practice and Accounting 9
Business, Commerce and Trade
We may distinguish between Business, Commerce and Trade here so as to clarify
these concepts. There is usually confusion in the use of these terms. Their correct
meaning should be understood.
i. Business, in its widest sense, includes all the human activities undertaken for
the sake of earning profit. In other words, it includes (a) industry, (b) trade and
(c) auxiliaries of trade,i.e. transport, banking and insurance. Each of them is
separately a business.
ii. Commerce is narrower than business but broader than trade. It includes (a)
trade and (b) auxiliaries of trade or agencies which facilitate trade. In other
words, Commerce includes trade, transport, banking and insurance.
iii. Trade implies exchange, i.e., buying and selling. It is conveniently divided into
home trade and foreign trade.
iv. Industry refers to production of goods. It is divisible into (a) extractive industries
(like agriculture and mining) and (b) manufacturing industries (like sugar,
iron and steel). (c) constructive industries (like construction of building, roads,
canals, etc.) (d) genetic industries (like poultry farming and nurseries)
For convenience of our study, we divide business into following two categories:
i. Industry
ii. Commerce
Industry
Industry is the part of business which involves the production of goods and services
through the utilization of factors like men, money, material and machine. Industries
can produce consumer goods as well as industrial products. Consumer goods are
intended to be consumed by consumers whereas industrial goods become raw
materials for other industries.
Industry has the following types:
i. Extractive industry: Extractive industries are those industries which are
meant for extracting raw materials and foodstuffs from the soil or from beneath
the earth’s surface. Agriculture, mining, forestry and fishery are important
extractive occupations. Agriculture is concerned with the cultivation of the soil.
Agricultural activities are largely governed by the seasons of the year. Mining
is the bringing out from below the surface of the earth. The mineral deposits
for use in manufactures. Fishing is an important occupation of that section of
population, that inhabits in coastal areas or riverside.
ii. Construction industry: Constructive industry is concerned with construction
of a new product at a particular place by using the goods produced by the
manufacturing industries. Construction of building, roads, canals, dams, etc is
the example of constructive industries.
Office Practice and Accounting 9 65
iii. Genetic industry: The term ‘Genetic’ refers to heredity. It involves the
reproduction of plants, species, birds and animals which are later used for
production of medicines, perfumes, etc. Poultry farming and nurseries are the
examples of genetic industry.
iv. Manufacturing industry: Manufacturing industries are those industries
which are engaged in converting raw materials into finished products, as is
done by a weaver of cotton cloth or in a factory for manufacturing silk, boots and
shoes, etc. The manufacturing process begins just after the raw materials reach
the factory and ends when the finished goods are completed. It has nothing
to do with the purchase of raw materials and sale of manufactured articles.
Manufacturing occupations differ from extractive occupations in as much as
they are less influenced by nature and are more specialized than the latter.
Commerce
Commerce includes all those activities which are concerned with the distribution of
products and services. It embraces purchase and sale of every kind as well as various
services like transport, banking, insurance, warehousing, etc. which facilitate trade.
It is not concerned with manufacturing of goods but it involves different activities
between the producers and consumers. Commerce helps the producers to give a
complete form to his business.
Commerce is divided into two broad classes:
1. Trade
Trade means the actual purchase and sale of goods. This is done by wholesalers,
retailers and similar other middlemen. It is an integral part of business in which the
ownership of goods or services is transferred from one to another for earning profit.
So trade involves the exchange of goods between producers and consumers.
a. Home (or internal) Trade: In this form of trade, the goods and services
are exchanged within the geographical territory of a country. It includes the
production, purchase and sale of goods within the different parts of the country.
The goods turned out by producers are sold in bulk to wholesale merchants. These
wholesale merchants sell them to retail merchants. The latter distribute them over
the length and breadth of the country among the actual consumers through their
numerous establishments infesting every nook and corner of the land.
It is obvious from the above that home trade may be either wholesale trade or retail
trade. Wholesale trade refers to the selling of goods in bulk. Producers of goods
sell them generally to big merchants, called wholesale merchants, who sell the
goods in bulk to small shopkeepers, called retail merchants. Retail Trade refers to
the selling of goods in small quantities to actual consumers. Neither the producers
nor the wholesale merchants have direct contact with actual consumers of goods.
The consumers purchase goods in small quantities to their requirements from retail
traders.
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b. Foreign (or External) Trade
Foreign trade refers to the trade carried on between the citizens of two or more
countries of the world. It is an act of the exchange of goods and services outside the
geographical territory of a country. It involves the exchange of goods and services in
foreign currencies. It is divisible into import trade, export trade and entrepot trade.
The purchase of goods from a foreign country is known as importing and the sale of
goods to a foreign country as exporting. In entrepot trade, goods are bought from a
country in order to sell them to some other country.
Foreign trade of the world exists because certain countries are especially fit for
producing certain articles which can be produced by other countries either with great
difficulty or not at all. It has, therefore, been found advantageous that each country
should produce only those goods which it can do most cheaply and exchange her
surplus produce with the goods produced by other countries and which it requires.
It is the application of division of labour on an international scale which has given
rise to foreign trade. Foreign trade enables each country of the world to satisfy the
large number of its wants and more economically than is otherwise possible and thus
contributes to material prosperity appreciably.
2. Auxiliaries of trade
Trade is carried on with the help of certain commercial bodies, services and institutions
which are called auxiliaries of trade. These are the components which help the smooth
flow of trade. They do not involve in buying and selling of goods directly but help
in trade by providing many services. They are Transport, Banking, Communication,
Advertisement and Insurance.
Business Organization
Introduction
The term “Business Organization” is simple to understand. Human activities
undertaken for earning a profit through the production, purchase and sale of goods
constitute business. Organization is the act of bringing into effective co-operation
the available resources for achieving a definite purpose. Business Organization may,
therefore, be defined as the act of bringing into effective co-operation the available
resources for production and distribution of goods with a view to earn profit.
"Business organization is the act of bringing into effective co-operation the
available resources for production and distribution of goods with a view to
earn profit."- A.N. Agrawal
"Business organization is a concern, company or enterprise which buys and
sells, is owned by one person or group of persons and is managed under a
specific set of operating policies."- Wheeler
Office Practice and Accounting 9 67
Business Organization may take various forms. The most important forms of business
organization are:
a. Sole Trading Concerns b. Partnership Firms
c. Joint Stock Companies d. Cooperative Societies
e. Public Enterprises f. Multi-national Corporations
The principal factors which differentiate one from another are the nature of ownership
of the business unit and its legal constitution.
Sole Trading Concern
Sole trading concern is the oldest form of business organization. The word “Sole”
means single or only one whereas trading means carrying out a business activity.
So, in simple words, sole trading is a business carried out by a single person. It is
owned, managed and controlled by a single person. He invests capital, makes all the
decisions of the business by himself, enjoys all the profit and bears all the losses. Sole
trading is a widely found business as it is easy to start and dissolve.
A person who carries on business exclusively his own account and risk is known as a
‘sole trader’. Variously described, the sole proprietor of a business unit is called a sole
trader. In our country joint family system is very widespread and many business units
are owned by a family rather than an individual. Such family concerns are treated as
sole trading concerns. A sole trader is known as an ‘individual entrepreneur’ or an
‘individual proprietor’.
According to A.N. Agrawal – "A person who establishes and manages
a business for his own account and risk is known as sole proprietorship
business."
According to Prof. L.H. Haney, ”The individual entrepreneurship is the form
of business organization at the head of which stands an individual as the
one who is responsible who directs its operations, who alone runs the risk of
failure.”
Advantages of sole trading
A sole trading concern has the following merits:
Firstly, it can be set up very easily and quickly. Anybody who wants to start a trading
concern can do so whenever he likes; there is nobody to create obstacles in his way.
The law of the land does not require him even to apply for registration or to fill in
some legal form; and absolutely no expenditure need be incurred in the formation of
the establishment.
Second, the sole trader is the sole dictator of the business and relatively free from
outside interference. He is capable of taking quick and prompt action so necessary for
business success.
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Third, the sole trader being entitled to the entire profits of the concern tries to maximize
profit by utilizing his talent and activities in the best possible way. The motivation of
efficiency in single entrepreneur organization is unchallenged.
Fourth, the sole trader can keep his business secrets entirely to himself. They cannot
be disclosed to his competitors or anybody else except by himself.
Fifth, the sole trader is able to create goodwill for his business and therefore, it is
easier for him to raise finance from the market. The liability of the sole trader being
unlimited, the creditors feel secure in extending credit to sole trader.
Sixth, all important decisions are taken by sole traders and hence there is no delay.
Had there been more than one person, decision making would be normally delayed.
Seventh, the Sole trader has direct communication with the consumers. Having
the first hand knowledge of consumer’s preferences and prejudices, he can make
necessary changes in the design and quality of products and their packing.
Eighth, the overhead cost of sole trader is the least of all business organizations and
hence his competitive strength improves in the right direction.
Ninth, the business of sole trader normally operates on a small scale and avoids
economic concentration and power in a few hands. Thus it does not create an economic
gap in society.
Disadvantages of sole trading
The form of business organization suffers from the following limitations which are
quite serious and which should be clearly borne in mind:
In the first place, the capital of a sole trading concern is usually small. It is limited to
the contribution of the proprietor and the credit he can get in the market. The modern
mammoth factories requiring crores of rupees cannot be ordinarily started by sole
traders.
Secondly, the limitations of managerial ability is as glaring as that of capital. Judgment
and wisdom which are individually possessed, of course, limited and may hamper
and increase in the scale of business.
Thirdly, the success of business depends upon the presence and personal abilities
of the proprietor. If circumstances make the absence inevitable, the business is
prejudicially affected.
Finally, the unlimited liability of the single proprietor is a great disadvantage to him.
Business debts run against his entire property not merely against the amount invested
in the business. This discourages the risk taking instinct of the entrepreneur.
Partnership Firm
When two or more individuals agree to carry on business for their mutual advantage
they are said to form partnership. A partnership is an association of two or more
persons to carry on business based on the agreement to share its profit and loss. This
Office Practice and Accounting 9 69
form of business has evolved in order to overcome some of the limitations of sole
trading concern like limited capital, limited managerial ability, unable to operate
large scale business, etc. Each person investing capital in a partnership firm is known
as a partner of the business. In this way, partner denotes to an individual whereas
partnership denotes a business formed collectively by the partners.
According to L.H. Haney, “Partnership is the relationship between persons
competent to make contract, who agree to carry on a lawful business in
common with a view to private gain.”
According to Nepal Partnership Act 2020, “Partnership is any business
registered in the books of Government of Nepal, which is carried by some
persons in one name sharing the profits with the mutual agreement to
participate all partners for each partner or a partners for all the partners in
business transactions.”
According to these definitions, there are the following essentials of partnership:
1. There should be more than one person to form partnership.
2. The persons concerned must combine to carry on business.
3. They must agree to share the profit of the business.
4. The partners carry out the business in the name of partnership firm.
5. The business must be carried on by all or any of them acting for all.
Types of Partnership
1. General Partnership
In general partnership, all the partners are allowed to participate in management
and are collectively liable to the obligations of the firm. All of them have unlimited
liability as well as equal rights.
a. Partnership at will: This partnership relies completely on the will of the
partners. Its life depends on the partners themselves. The firm terminates when
the partners have no faith in each other or if they mutually agree to dissolve the
firm.
b. Purposive partnership: Such partnership is established with a fixed purpose or
objective to be fulfilled or for a certain period of time. The firm automatically
dissolves when the objective of the firm is fulfilled or if the time has reached. It
has two types which are as follows:
i. Partnership for fixed term: This type of partnership is established for a
fixed period of time. As soon as the period is completed, the partnership
dissolves.
ii. Partnership for fixed work: This type of partnership is formed for
completing a certain work. Such partnership is automatically dissolved
after the completion of the work.
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2. Profit sharing partnership
Such partnership involves certain number of partners who are involved to share the
profit, but not the loss. However, those partners are liable to the third parties for all
acts of the firm. The number of such partners is chosen according to the agreement
among the partners. Such partners are not allowed to take active participation in
management.
3. Limited partnership
It is such kind of partnership in which there exist partners who have limited liability.
Therefore, at least one partner should have unlimited liability and at least one
must have limited liability. The special partners, who have limited liability, cannot
participate in the management but can make suggestions to the management.
Kinds of partners
1. General and Limited Partners: Ordinarily all the partners of a firm have unlimited
liability. Such partners are known as general partners and the partnership, as general
partnership. But the law allows some partner to have the liability or obligation limited
to the amount of capital contributed by him or her. Such partners are called limited
partners, and the partnership, limited partnership. All the partners in a firm cannot
have limited liability. The liability of some of the partners must be limited.
The limited partner has his rights curtailed. He must not take any part in the
management of the business. He may advise, inspect books of account, but cannot
control. His position is rendered the more ineffectual from its point of view, by reason
of the fact that if he dislikes the way of business is being carried on, he has little scope for
interference. He cannot dissolve partnership. A limited partner is an inactive partner
who contributes capital and merely shares profits and losses of the firm. Generally, a
senior partner who desires to retire and who trusts his co-partner leaves his capital
with them and becomes a limited partner. The advantages of limited partnership are
that the firm is enabled to obtain additional capacity without converting itself into a
limited liability company. One can start a new business with the aid of friends and
relatives, who can, with reasonable safety and lessened liability, risk their money.
2. Active or Ordinary partners: Active or Ordinary partners are those who take
upon an active part in a business. Active partner invests capital as well as takes active
part in the general conduct of the business. However, the reward may or may not be
paid to him which depends on the agreement made with other partners.
3. Sleeping, Dormant or Silent partners: Sleeping, Dormant or Silent Partners are
those who, unlike active partners, do not take open part in the business and do not
appear to the world as partners, although they have money in the firm and share the
profits.
4. Nominal or Supposed partners: Those who do not contribute any capital
or share in profits but lend their names and credit to the firm, or otherwise hold
themselves out as partners therein. Such persons incur the liability of a partner as
between themselves and third parties dealing with the firm.
Office Practice and Accounting 9 71
5. Quasi-partner: A quasi partner is the one who doesn't contribute the capital
but lends money as loan to the firm. He does not participate in the management but
receives interest on such loan as long as it is not paid off.
6. Incoming partner: Such a partner who joins an ongoing or already existing
partnership firm is called incoming partner. A new partner can be added to the
partnership firm with the mutual consent and agreement of all the other remaining
partners. However, he is not liable for the debt of the firm which existed before
his entrance in the business. These partners have to pay extra amount to enter the
business.
7. Outgoing partner: This type of partner is also known as retiring partner because
he is the partner who is leaving the firm with the consent of all other partners. He
gives a written notice to all partners. He is liable to the debts of the firm which existed
before his retirement
8. Minor partners: If all the existing partners, who are usually major, consent, a
minor may be admitted to the partnership. A minor partner has right to share of the
profit and property of the firm according to the partnership agreement; and he can
inspect or copy any of the accounts of the firm. His share in the firm is liable for the
debts of the firm but he is not personally liable for any such debt.
9. Secret partner: The partner who contributes capital, shares profits and losses,
bears liability, participates in the management but remains secret to the outsiders is
known as a secret partner.
Advantage and disadvantage of partnership firm
Advantage of partnership
1. Partnership can be easily formed because any two or more than two persons
agreeing to carry on business together may become partners and get themselves
registered as such. The case of formation is, of course, not as in the case of “one
man’s business” because the known and trusted parties worthy of becoming
partners are not easily available while the necessities of registration and other
legal formalities involve time and expense. But apart from these factors, the sole
trading concern and partnership stand on the same level.
2. ‘The motive to devote one’s entire energies with a view to maximize profits is
fairly strong.’ So great is the risk arising from unlimited liability so direct is the
relation between effort and reward, so personal is the relation between partners,
as great in partnership as in sole proprietorship because in the latter, the fruits of
one’s labor are enjoyed entirely by one’s own self, whereas in the former they have
to be shared with other partner or partners.
3. The objects of membership and the amount of capital of the firm are determined
by mutual agreement between the partners and can be changed with their consent.
So, partnership is flexible in nature.
4. Partnership commands greater business resources than sole proprietorship.
The availability of increased capital and skill is a distinct advantage. Certain
businesses require large investment or the combined judgment of several heads
72 Office Practice and Accounting 9
of differentiation and division of functions in control and management, which
partnership allows.
5. The liability of partners being generally unlimited, a firm can borrow more capital
than a sole trader.
6. Any material decision made by the firm requires the consent of all the partners.
As such minority gets adequate expression.
Disadvantages of partnership
1. A firm cannot always take a prompt and quick action because consultations
of all the partners is essential. Too many cooks spoil the business broth and
divided council may act with indecision, though ordinarily in most questions of
management a majority decides.
2. The number of partners is limited; consequently, the amount of capital is also
limited. It is, of course, certainly, greater than that of a sole trader but it is definitely
less than that of a company whose shareholders can be thousands.
3. The liability of a partner is unlimited which is a great drawback to him. The larger
the sale of operations of a firm, the greater is the risk.
4. Partnership has a very precarious existence. The death, lunacy or insolvency of a
partner or an act in contravention to the partnership agreement may lead to the
break-up of the firm
5. A partner cannot sell his share in the partnership without the consent of the
other partners. Even if the partners are inclined to consent, the transferee must
be either one of the remaining partners or a person entirely agreeable to them,
which considerably restricts the scope of sale.
A Joint Stock Company
A joint stock company may be defined as an association of several persons, incorporated
as a company, who contribute money to a joint or common stock for the purpose of
employing it in some business and share among themselves the profit or the loss
arising from it. A joint stock company must be an incorporated body. Joint Stock
Company is the voluntary association of persons, having separate legal existence,
common seal with a large amount of capital and with a motive to make profit. The
capital of Joint Stock Company is divided into large number of units called shares and
is issued to general public. The group of people who hold its share is the shareholder
of the company and they have liability only up to their investment. These shares can
be easily transferred from one person to another. It is managed and controlled by the
representatives of shareholders who are known as Board of Directors.
According to L.H. Haney, "A company is an artificial person created by law
having a separate entity with a perpetual succession and a common seal."
According to Nepal Company Act 2063 B.S., "Companies formed and
registered under this Act" or an "existing company".
Office Practice and Accounting 9 73
According to Heelis, “A Joint Stock Company is an association of individuals
for the purpose of carrying on some trade, business or undertaking usually
with limited liability, but sometimes with unlimited liability.”
In Nepal, Joint Stock Company should be established under the Company Act 2063
B.S.
Features of a company
The features of a joint stock company are discussed below:
i. Distinct legal entity: A company is an artificial person created by law. So it
has an existence independent of its members. It can own property, enter into
contracts in its own name and conduct a lawful business. Shareholders are
neither the owners nor the agents of the company. So a shareholder cannot be
held liable for the acts of the company and vice-versa.
ii. Perpetual existence: A joint stock company has a key perpetual succession. Its
existence is not affected by death, lunacy or bankruptcy of its members. Its old
shareholders may go by selling their shares and new shareholders may come,
but it does not affect the existence of the company. The company is created by
law and can be liquidated by law only.
iii. Limited liability: Since the company has a separate legal entity, its members
cannot be held liable for the debts of the company. The liability of every member
of a limited company is limited to the normal value of the shares subscribed by
him or to the amount of guarantee given by him. A member cannot be asked to
pay more than what is due from him in respect of shares allotted to him even
though the assets of the company are not sufficient to meet fully the claims of
its creditors.
iv. Transferability of shares: The shares of companies are transferable except in
case of private companies. Every shareholder of a public limited company is
free to transfer the shares held by him to anybody else.
v. Separation of ownership and management: Separation of ownership and
management has become an important feature of joint stock companies. The
number of persons who hold the shares of a company is generally very large.
Shareholders have no right to participate in the day-to-day administration of
the affairs of the company.
vi. Separate property: A company, being a legal person, is capable of owing, using
and disposing of property in its own name. Shareholders are not the joint
owners of the company’s property.
vii. Common seal: As an artificial person, a company cannot act and sign itself. It
acts through human beings known as directors. All the acts of the company done
through the directors are authenticated by the common seal of the company.
The common seal is the official signature of the company. Any document which
is not bearing the common seal of the company is not binding on the company.
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Advantages
Advantages of joint stock company are explained below:
i. Limited liability: Shareholders of the company have limited liability which means
they have liability only up to the amount of their capital investment. In case of
liquidation, shareholders are not liable for excess claims even if the liability of the
company is insufficient to pay its debt which encourages many people to invest
in share of Joint Stock Company.
ii. Huge capital: Joint Stock Company can collect large amount of capital by issuing
its shares and debentures to the general public. Since the capital of company is
divided into small units called shares, so all level of people (rich or poor) can
purchase its shares. It can also easily raise funds from various financial institutions.
iii. Transferability of share: The shareholders of Joint Stock Company can sell their
shares to other persons though secondary markets when they are in need of
money. It facilitates liquidity to their investment. This transfer of shares from one
person to another will not affect the management and control of the company.
iv. Economies of scale: Since the Joint Stock Company has large capital, they can buy
the advanced technology and can involve in mass production, distribution, and
promotion of goods and services which help to capture large market share. This
mass production and distribution helps to reduce the cost per unit of product.
v. Perpetual succession: Company is a separate legal entity and it is not affected
by the death, lunacy and bankruptcy of the shareholders. So, life of the company
is independent of its shareholders. The stability of business for longer period of
time is beneficial to the society and nation.
vi. Efficient management: The management of Joint Stock Company is done by
the elected representatives of the shareholders i.e. Board of Directors. Usually
the shareholders elect those members who are expert in their respective fields
and it can also hire highly skilled manpower by offering better salary and career
opportunity. Therefore, it can get efficient management team that can lead their
business towards higher profitability and market share.
vii. Public confidence: The joint stock company gets the public confidence because of
efficient management, publication of financial statement, perpetual existence and
the existence of legal rules and regulations to govern it. Public have good faith in
the company. Due to this, it will be easier to obtain capital from different sources
through issue of shares and debentures.
viii. Easy to obtain Loan: It is easier for Joint Stock Company to obtain loan from the
general public and financial institutions due to public confidence, publication of
financial statement, investment of huge capital in business and perpetual existence.
Disadvantages
Disadvantages of joint company are explained as follows:
i. Difficulty in formation: The formation of a company is a difficult task; laborious
and long legal formalities have to be undergone and considerable expenses
incurred in its formation.
Office Practice and Accounting 9 75
ii. Lack of secrecy: Companies are managed by so many persons that their
business secrets can be preserved only with difficulty. Their business plans and
true financial position can easily leak out
iii. Chances of fraud by the directors: As all the responsibilities are handed over to
the hands of directors, sometimes, they may manipulate and misuse a very big
amount and goods of the company.
iv. Lack of prompt decision: In company, decision-making process is very lengthy
and time consuming because all-important decisions are made by the board
meeting or general meeting. Calling for a meeting and conducting it is a lengthy
process.
v. Misuse of power: The power of the company is centralized in the hands of Board
of Directors. So the clever and dishonest directors can take undue advantages
from the company.
vi. Neglect of a minority: There are two types of shareholders in the company-
promoter shareholders and general shareholders. Promoter shareholders are
few in number but hold large number of shares, on the other hand, general
shareholders are large in number but they hold less number of shares. In
company, there is principle of ‘one share one vote’ and due to this reason
majority of decisions are dominated by promoters.
Public Enterprises
Public enterprise is a business organization wholly or partly owned by the state and
controlled through a public authority. It is an enterprise under government control.
More than half of the total shares of a public enterprise is owned by the government
and effectively managed by the government. Such organizations are run mainly by
government to provide qualitative goods and services to public at a reasonable price.
They include all the industrial and commercial activities of the government. The
principal objective of public enterprises is to establish basic industries in the country and
provide utility services like water, electricity, transportation, communication etc to the
people. These public enterprises are established under Corporation Act, Development
Board Act, Company Act or special act of the parliament. Nepal Bank Limited, Nepal
Oil Corporation, Nepal Electricity Authority, Nepal Salt Trading Corporation, National
Trading Corporation, Airlines Corporation, Nepal Television, Dairy Development
Corporation are some of the examples of public enterprises in Nepal.
According to A.H. Hanson, “Public enterprise means state ownership and
operation of industrial, agricultural, financial and commercial undertaking.”
According to A.N. Agrawal – "Public enterprises are established, controlled
and operated by the government to produce and supply goods and services
to the society."
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From the above meaning and definition, we can conclude that public enterprise is any
commercial or industrial undertaking owned and managed by the government with
a view to maximize social welfare and uphold the public interest.
Importance of public enterprises
i. Establishment of huge and basic industries: During initial stage of economic
development, the public enterprises establish key or basic industries that require
investment of huge capital and expertise in which the private sector has not
shown their interest. At the beginning of industrialization in Nepal, maximum
key industries were established under public enterprises like Nepal Telecom,
Nepal Electricity Authority, Nepal Oil Corporation, Nepal Airways, National
Insurance Corporation, etc.
ii. Uncertainty avoidance: Each and every country has their own development
plans and for the execution of such plan or to achieve the target set by government
within predetermined period, government cannot be fully dependent on private
sector. For this purpose, it initiates the establishment of industries of its own
requirement. Ultimately, it avoids the uncertainty of private enterprises for the
achievement of predetermined goal.
iii. Basis for planned development: Public enterprises play an important role for
the planned economic development of nation. Generally public enterprises make
the investment for their expansion and growth according to their plans. They
also target for investment in those industries where it requires very long period
to get the return or profit and where the private sectors lose their interest.
iv. All round development: Balanced economic growth is the main motto of
the government and to attain this motto public enterprise plays an important
role. Generally private enterprise does not want to enter in such region where
profitability is comparatively lower. But, public enterprises want to provide
service to all the regions even if the profitability is lower. So, for the balanced
economic development of the nation public enterprises are a must.
v. Job creation: Public enterprises are operated by the government with large
amount of capital and it also has wider scope. So, it requires a large number
of people to operate the enterprises which creates employment opportunity to
people and ultimately enhances the living standard of people.
vi. Infrastructure development: Development of infrastructure is a must for
the development of commerce and industry in the country. Public enterprises
have been playing an important role for the development of infrastructure like
drinking water, transportation, communication, electricity, education, etc.
vii. Government revenue: Public enterprises are one of the important sources of
government revenue. The public enterprises are involved in various business
activities and they have to pay the tax to the government in various forms like-
customs duty, corporate tax, VAT, income tax, etc. which ultimately increases the
revenue of the government.
Office Practice and Accounting 9 77
Cooperatives
Co-operative is a form of organization where persons voluntarily associate together on
a basis of equality for the promotion of the economic interests of themselves. Generally
the persons belonging to a certain locality, region or group form a co-operative society
for the promotion of their common economic, educational and social needs. They join
together for business with the principle of equality and mutual help. It is a democratic
organization established with equal contribution from all its members.
According to prof. H. Clavert, “Co-operative society is the form of organization
in which persons voluntarily associate together as human beings on the basis
of equality for the promotion of economic interests of themselves.”
According to Nepal Co-operative Act 2048, ”Society or union means a primary
co-operative society or union registered under section 5.”
From the above analysis and definitions we can say co-operative is a democratic set
up by which the common interests of the members are served. It is an autonomous
organization established on the basis of mutual co-operation and equality. It has the
principle of “All for each and each for all.”
The first co-operative organization “Rochadale society of equitable pioneers”
was established in 1844 AD by Robert Owen. He is considered as the father of the
cooperative movement. The main objective of this society was to save poor people
by providing goods at cheaper rates than the market by eliminating middle man and
provide better service to its members.
Principles of co-operatives
a. Democratic management: The management is always a democracy. Members can
elect a body of persons to administer the day to day functions of the society.
b. Self help through mental help: The objective is not maximization of profit but to
provide service to members.
c. Voluntary membership: Any member is at liberty to join or leave the cooperative
society. There are no restrictions on admission on the basis of religion or caste or
political party.
d. One man one vote: Irrespective of a member’s contribution to capital each
member is given only one vote. So there is no question of oppression of minority.
e. Distribution of surplus: The society can allocate a portion of the surplus towards
reserve and common welfare measures and distribute the rest in the form of
dividend.
78 Office Practice and Accounting 9
Features/Characteristics of Co-operative Society
i. Voluntary organization: A co-operative is a voluntary association of persons
having common economic and social interests. It is an association of individuals
who have low income and want to improve their economic status through
mutual co-operation. Every person can become the member of co-operative
organization by contributing equal capital. An individual can freely join and
leave the organization by giving simple notice to co-operative society but cannot
transfer his membership to another person.
ii. Open membership: There are no criteria for membership of co-operative
organization. All the persons are eligible for its membership irrespective of their
age, sex, caste, religion, culture, financial status, etc. Generally it is formed by
the farmers, artisans and consumers having limited means who are victims of
middle men, money lenders and large business organizations.
iii. Service motive: The main objective of cooperative is to provide better services
and quality goods at reasonable price to its members rather than to earn profit.
Even though co-operative organization earns some profit by providing services
to its non members, it is done to manage its operational and administrative costs.
iv. Democratic management: Co-operative organization is managed by
management committee or Board of Directors (BOD). The BODs are elected
in Annual General Meeting (AGM). During the election all the members have
equal rights to nominate BOD i.e. one member one vote. The AGM formulates
the plans and policies of the co-operative organization and BOD executes them.
The decision of this organization is taken by majority of votes. So, it is known as
democratic organization.
v. Separate legal status: A co-operative organization is an artificial legal person
created by law. It is incorporated under the Co-operative Act 2048 B.S. It has a
distinct seal of its own which is used in all of its legal affairs. It can buy property
in its own name. It can also sue and be sued as an individual person in court.
vi. Distribution of profit: The main objective of co-operative is not to earn profit but
to provide services to its members but it can earn profit by extending their services
to non members. The earned profit will be transferred to reserve fund (for their
investment in education, health, sanitation, recreation, etc), distributed among the
workers as bonus and remaining portion is distributed as dividend to its members.
vii. Equality: A co-operative organization will operate on the basis of equality.
So that right of all the members will be equal “One man one vote” system will
prevail in this organization. No one can dictate or hold more shares. There will
be no discrimination on the basis of caste, religion or political affiliation.
viii. Fulfillment of community motive: A co-operative society is established by a
group of people having common interests. Its main motive is to fulfill interest of
community who involves in it. Agriculture co-operative has to supply all kinds
Office Practice and Accounting 9 79
of requirements to farmers like better seeds, fertilizers, technical assistance, etc.
Hence, the main motive of co-operative is to develop productivity and living
standard of its members.
ix. Mutual help: Co-operative organizations are established with the feelings of
mutual help and co-operation among its members. So, “one for all and all for
one” is the principle of these organizations.
x. Cash transaction: A co-operative organization sells goods and services to its
members and outsiders only in cash. So that expanse for cash collection and
possibility of bad debts can be eliminated and also it can perform business
successfully with limited capital.
Types of cooperative societies
a. Consumer's cooperatives: These societies are formed to protect the interest of the
consumers from improper distribution at high prices of the consumable items.
The societies make bulk purchase direct from the producers and distribute the
goods amongst members at reasonable price.
b. Producer’s cooperatives: These societies are formed to protect the interest
of small products who find it difficult to procure all inputs and to market the
finished goods. The societies supply to producers all input factors, pay them their
conversion charges and purchase the finished goods from them. Portion of profit
arising from sales is distributed among the producers. Sometimes, the cooperative
societies also arrange to supply machinery and equipment to producers.
c. Marketing cooperatives: These societies are formed to collect the production of
the members and to sell the goods without the help of intermediaries. The societies
also undertake ancillary services like grading, warehousing, transportation,
insurance, etc. A portion of the profit is distributed among the producers.
d. Multi-purpose co-operative society: The co-operative society established to fulfill
more than one purpose at a time is known as multi-purpose cooperative society.
It provides many facilities and services to its members. The main objective of
this society is to arrange agricultural inputs, sell of agricultural out puts, provide
health and education service to its members, etc.
e. Housing cooperatives: The low and middle income group housing schemes are
exempted by housing cooperatives formed by those who cannot have finance to
build houses of their own. The societies take loan from the financial institution
and government and grant advantages to the needy members.
f. Agriculture credit cooperatives: These societies are formed by farmers to obtain
the benefits of large scale farming on modern methods. These societies arrange
facilities connected with the use of machinery for cultivation and harvesting. The
members pay for the services rendered by the societies. Sometimes the societies
80 Office Practice and Accounting 9
take the responsibility of marketing the agricultural products too. There are certain
societies who acquire land and distribute to the members for cultivation.
Multinational Company
Multinational corporations are large industrial organizations, which extend their
industrial and marketing operations in a number of countries through a vast network
of branches and/or subsidiaries. They are also called transnational corporations or
supranational corporations. These corporations have their management headquarters
in one country known as home country and operate and live under the values and
customs of other countries known as host countries.
According to H. Jacob - "A multinational corporation owns and manages
business in two or more countries."
According to Rocbock and Simmons, “Multinational company is a large corporation
with operations spread over several countries but controlled by a central headquarter.”
The main objective of multinational company is to operate in a specialized field
covering a large range of products to be sold in various countries. Some of the
multinational companies selling their products in Nepal are Coca Cola, Pepsi, Toyota,
LG, Samsung, etc.
Normally a multinational company (MNC) conducts operations through (1) branches
(2) subsidiary companies, (3) joint venture companies, (4) franchise holders, (5)
turnkey projects.
1. Branches: They are the branches of the parent company incorporated outside the
countries. Such companies are called foreign companies.
2. Subsidiaries: They are incorporated under the law prevailing in the respective
countries and hence owe a separate legal existence. They take advantage of the
financial and managerial skills of the holding company. They sell their products
easily because of the international reputation of the holding company.
3. Joint venture company: A multinational firm joins the hands of a local company
as a matter of convenience or as a matter of legal necessity. Such a management
is called joint venture and it is generally prevalent in countries where the law
stipulates participation of local entrepreneurs.
4 Franchise holders: This is a kind of arrangement of selling under a license taken
from the multinational firms. The multinational firm enters into a contract with
the affiliate firm stipulating one kind of compensation (usually in the form of
royalties) payable to the parent-body.
Office Practice and Accounting 9 81
5. Turnkey projects: Underdeveloped countries invite tenders for completion
of certain project requiring high technology. The multinational firm bids and
undertakes the completion of the project from the beginning to the end.
Characteristics of multinational company
i. Mass production and selling: Multinational Company is established with
huge capital and it uses modern and advanced technology. As it has monopoly
and worldwide market, it produces and sells a very large number of goods and
services.
ii. Advanced technology: Multinational Companies use their own special as well
as modern and advanced technology for the production of goods and services.
They also establish separate research and development department and employ
skilled and talented personnel to conduct research and bring innovation in their
production, distribution and for promotion activities. They also transfer such
advanced technologies to developing countries by establishing branches or
affiliates.
iii. Global operation: Multinational Companies operate globally. The parent
company manufactures and sells its products and services through its subsidiaries
established in other countries. Hence, they perform their business at the global
scales.
iv. Ownership and control: The capital for the establishment of MNC for its
subsidiary company is collected from people of the host country as well as from
the parent company. However, the parent company controls the management
and its operation of the branches or affiliated companies through huge capital
investment, technology, trademark, patent, etc.
v. Oligopolistic powers: Oligopoly means power in the hands of few companies
only. Due to their giant size, the multinational companies occupy dominating
position in the market. They join hands with big business houses and give rise to
monopoly. They also take over other firms to acquire huge power and improve
market share.
vi. Centralized control: The branches of Multinational Companies spread in
different countries are controlled and managed from the headquarters situated
in the home country. Headquarters in the home country is the main branch. All
branches operate within the policy framework formed by the headquarters.
82 Office Practice and Accounting 9
EXERCISE
Give short answers to the following questions.
1. What is meant by business? Explain any four features of business.
2. What is sole trading concern? Explain any four advantages of it.
3. Explain any five types of partners.
4. Define joint stock company with its any four merits.
5. What is the importance of business?
6. Define public enterprises. Write any four needs of public enterprises.
Give long answers to the following questions.
1. Define business with its importance.
2. What is multinational corporation? Explain its any four advantages and four
disadvantages.
3. What is co-operative organization? Explain types of co-operative organizations.
4. What type of organization is joint stock company? Explain its four advantages
and four disadvantages.
5. What is multinational company? Explain its characteristics.
Office Practice and Accounting 9 83
UNIT
7 Meeting and Conference
Learning objectives:
After the completion of this unit, students will be able
to understand :
• meaning of meeting and conference.
• types of meeting.
• meaning of notice and agenda.
• minuting of meeting.
• meaning of seminar.
• drafting and endorsement of minute.
84 Office Practice and Accounting 9
7 Meeting and Conference
Introduction
One of the ways of communicating and involving people is meeting. It is a gathering
of two or more persons at a place in response to the pre-notice for making discussion
and decision on some particular problems or subjects. A meeting is a formal gathering
of related members of an organization to review its activities, performance, and
position and to pass resolutions. Many meetings take place in course of a business to
serve a variety of purposes like just sharing information or getting instant feedback or
making decisions and implementing them. Whatever may be the purpose, meetings
enable face-to-face contact of a number of people at the same time. They provide
a useful opportunity for exchange of ideas and feelings. Managers should be well
aware of the potential benefits of meetings and know how to conduct them effectively.
Students often feel confusion between meeting and conference. They should draw
a clear distinction between the meaning of meeting and conference. Conference is a
kind of very large group meeting with the purpose of encouraging members to share
ideas, information and knowledge to define and solve problems. People have similar
interests, experiences and opinions in conference. It is more informal and specially
designated for knowledge sharing purpose. Conference has wider scope and free
discussion is allowed on a topic of mutual concern. In a conference, participants are
guided by its leader. Similarly time frame of conference may vary as per its objectives
and topic of discussion. A long discussion can be helds and participants can express
their views, ideas, and opinions and can give recommendations and suggestions on
the topic of the conference. But suggestions and recommendations are not binding on
the executives.
Types of meetings
The word 'meeting' refers to coming together of two or more persons for certain
purpose. It is the most commonly used form of communication in organizations.
Meetings can be classified basically into two types:
1. Formal meetings
2. Informal meetings
Office Practice and Accounting 9 85
1. Formal meetings
Formal meetings are statutory. The rules of conduct of formal meetings are laid down
in a company’s Articles of Association and Standing Orders. With such meetings a
quorum must be present, i.e., the minimum number of people who should be present
in order to validate the meeting. A formal record of these meetings must be kept,
usually by the company secretary.
a. Annual General Meeting (AGM)
Annual general meeting is the general assembly of the shareholders at the end of
every fiscal year. AGMs are held once a year to assess the trading of the organization
over the year. All shareholders are invited to attend the AGM. For conducting
the meeting, the company should give 21 days prior notice to all its shareholders
mentioning the agenda to be discussed, venue, date and time of meeting. The notice
for the meeting must be published at least twice in national daily newspaper inviting
all the shareholders to attend the AGM. The Chairman of the company is responsible
to present the agenda of AGM.
b. Special General Meetings
Special general meetings are called so that the directors and shareholders can
communicate and consider special reports. It is conducted when any urgent matters
are to be discussed and the decisions are to be taken immediately. In order to conduct
such meeting, the company should provide 15 days prior notice to its shareholders
mentioning the details about the agenda of meeting, its venue, date and time.
Companies are required by law to hold these special general meetings.
c. Board meetings
Board meetings are held as often as individual organizations require. Board of
Directors are the representatives of the shareholders and they are responsible for the
day to day management of the company. The gathering of BOD in connection with
the business and the management of the company is called BOD meeting. They are
attended by all Directors and chaired by the Chairman of the Board.
2. Informal meetings
Informal meetings are non-statutory. They are organized voluntarily by the initiative
of managers, to assemble a group of employees who may need to discuss a specific
matter, report on progress and receive progress reports. For example, the marketing
manager, sales manager, production manager and research and development may
meet to discuss the launch of a new product.
These meetings are not restricted by the same rules and regulations as formal meetings.
Strict agendas may not be necessary and minutes may not be kept. However, it is
usually considered good business practice for an agenda to be issued to all members
86 Office Practice and Accounting 9
prior to the meetings so that they can prepare adequately in order to make a valuable
contribution.
a. Departmental meetings
These meetings are called by the Head of Department or manager of a certain section.
All the staff members will be invited to attend so that information can be passed on or
reports received from some members of staff regarding specific project.
b. Task group meetings
Task groups or committees may be set up to work together on a specific project or
problem. At meetings, progress reports will be given and decisions for further action
taken.
Planning of meetings
Effective planning ensures the success of a meeting. Planning involves the consideration
of five questions.
i. Purpose: What is the objective or purpose of this meeting?
ii. Participants: Who should attend this meeting?
iii. Schedule: When and where will the meeting be held?
iv. Resources: What material, equipment, refreshments and room layout will be
required for the meeting?
v. Notice and Agenda: How should the information about meeting be
communicated? What should the agenda include?
Procedure of meeting
The following steps are involved in the conduct of meeting:
• Meetings are convened in two ways.
• A committee or a constituted body is generally convened by the chairperson or
secretary or a pension authorized by him.
• A manager, is authorized to conduct meeting of employees under his supervision.
• The chair person presides over the meeting and conducts its proceedings.
• Members participate in the meeting and contribute their ideas.
• The secretary or the convener, authorized to take minutes, prepares the minutes.
• A minute book is maintained to record in brief the points considered and
resolutions taken.
Notice and Agenda
Notice gives details of the type, place, day, date and time of the meeting. Agenda is
a document that outlines the contents of a forthcoming meeting. An effective agenda
should include the following information:
– Company name and committee name.
Office Practice and Accounting 9 87
– Notice – It states place, day, date and time of meeting.
– The heading agenda.
– Items of ordinary issue.
– Items of special issue.
– Any other issues.
– Date of next meeting.
– Reference and date.
Agenda is usually sent along with the notice of the meeting. The notice and agenda
are usually combined in one document. The portion at the top is known as the notice.
The agenda is the middle portion of the document.
Notices and Agenda
Arohi Toys Manufacturers,
Fikkal
The quarterly meeting of the Board of Directors will take place on Monday, 3rd
August, 2017 at 4:00 p.m. in the meeting hall.
Agenda :
1. Apologies for absence
2. Minutes of the last meeting
3. Matters arising from the minutes
4. New branches
5. Reorganization of production facility
6. Any other business
7. Date of next meeting
Mrs. Pokhrel
(Secretary)
25-07-2017
Sometimes, the agenda is prepared after the circulation of the notice in order to enable
the members to include in the agenda any item that they would like to be discussed
at the meeting. Occasionally, if the chairperson and the secretary do not want the
members to know the items to be discussed, the agenda is not circulated.
Preparing agenda is a very useful practice. It will guide all the participants to reach
the goals of the meeting.
88 Office Practice and Accounting 9
Minutes
Minutes are the official record of the proceedings of a meeting. They show what was
formally considered and resolved. All organizations, whether commercial or social,
attach great importance to minutes. In case of joint stock companies, it is compulsory
for them to maintain minutes of the proceedings of every general meeting and the
meetings of the Board and its committees. Once minutes are approved and signed,
even a court of law accepts them as evidences of the proceedings. The main object of
writing minutes is to record, concisely and accurately, the essential work done at a
meeting.
Types of minutes
Minutes are of three types:
i. Minutes of resolution: In this type of minutes, only the resolutions passed
at a meeting are recorded. No reference is made to any discussion preceding
the resolutions. No mention is made even of the movers and seconders of the
resolutions.
ii. Minutes of narration: Minutes of narration report, in addition to the resolutions
passed a brief account of the discussion and the voting pattern.
iii. A combination of both: Very formal minutes include the proposal with the
name of the proposer and the seconder, a short summary of the discussion and
finally, the resolution.
The usual practice is to write minutes of resolutions.
Structure of minutes
Minutes should include short summaries of any reports submitted and all the decisions
taken at a meeting. They should be brief but exact, describing clearly the action to be
taken but not the discussion. They do not offer a verbatim report of the proceedings.
Minutes may be recorded either in a tabular form or in the form of continuous
paragraphs. The elements of the minutes are given here:
i. Name of the meeting: Annual general meeting, extraordinary meeting, board
meeting, etc.
ii. Date, time and place: The date, time, and place at which the meeting is held
should be mentioned.
iii. Reference number: In the case of general meetings of the company as well as
board meetings, it is usual to give the number of the meeting.
iv. Names of those who are present: The minutes should contain the names of all
those who are present and the capacity in which they are present.
v. Items numbered and headings: Each item in the minutes is numbered and
given a brief heading.
vi. Special resolution: If a special resolution is to be passed by a given majority,
this fact should be entered in the minutes. In fact, the minutes should record the
number of those in favor and those against the resolution.
Office Practice and Accounting 9 89
Writing minutes
Writing minutes is a simple, clerical task. Here are few tips on minute writing:
i. Finished at the end of meeting: The secretary should go on taking notes when
the meeting is going on. If a clarification is required, it should be immediately
sought. The work of writing the minutes should be undertaken as quickly as
possible after the conclusion of the meeting, so that important facts are not
forgotten.
ii. Impersonal tone: The tone of the minutes should always be impersonal.
Reported speech should be preferred and as far as possible, passive verbs
should be used.
iii. Simple language: The language of the minutes should be kept as simple as
possible. Unnecessary adornments should, as a rule, be avoided.
iv. Easy references: When is the meeting held? Dates and figures should be
precisely and clearly mentioned in the minutes. If a reference is made to certain
letters or reports, their numbers and dates should also be mentioned. This
eliminates the possibility of ambiguity and misunderstanding.
v. Indexing: For easy location of any particular decision, minutes are usually
numbered and a subject index is maintained at the back of the minutes book.
Only special decisions, likely to be referred to in future are indexed. There is no
need to index routine items.
vi. Feelings not recorded: While writing minutes, no reference should be made to
the feelings of the persons present.
vii. Approval of chair person: It is advisable for the secretary to show the rough draft
of the minutes to the chairperson and get his/her approval. This will do away
with the possibility of having to make any alteration later if the proceedings are
incorrectly recorded.
An example of notice, agenda and minute of an imaginary organization is presented
below:
Notice
The eighth meeting of the executive committee will be held at 4 pm on Friday, 22
August, 2016 in the Public Hall. The agenda is given below:
Please make it convenient to attend the meeting.
Agenda
1. Minutes of the previous meeting
2. Social work involvement
3. Celebration of Saraswati Puja
4. Any other matter with the permission of the chairman
cc: All members
Ms. Sanju Sharma
Secretary
90 Office Practice and Accounting 9
Minutes
The Public Hall
Campus Road, Bhaktapur
Date: 3 Feb. 2018
Minutes of the eighth meeting of the executive committee held 4 pm on Friday
3 February 2018 at Public Hall,
Members Present: Signature
Mrs. Uma Pokhrel (Chairperson) ................................
Mr. Bigyan Baral (Member) ................................
Ms. Arya Parajuli (Treasurer) ................................
Mr. Kiran Bhandari (Member) ................................
Ms. Sanju Sharma (Secretary) ................................
Member Absent:
Mr. Arogya Shrestha (Member)
1. Minute of the previous meeting
The minutes of the previous meeting held on 3 January 2016 were taken as read,
adopted and signed by the chairman.
2. Social work involvement
It was decided to organize the 5th blood donation program during February
22-24, 2018.
3. Celebration of Saraswati Puja
It was decided to celebrate Saraswati Puja in the premises. A sum of Rs.
50,000/- was approved for this purpose. The secretary was asked to make the
arrangements.
As no other matter was raised, the meeting ended with a vote of thanks to the
chair.
Uma Pokhrel Sanju Sharma
Chairperson Secretary
Office Practice and Accounting 9 91
Endorsement of minute
Endorsement of minute is act of signing of minute which is an essential safeguard
against tampering. It is desirable that page of the minute book is dated and signed by
the chairperson and the other present members in meeting. It is the act of approving
the decision made in the meeting after detail discussion on the agenda. It is common
practice to collect the signature on the same day of meeting but 24 to 48 hours can be
given to the members for amendment or oppose the decision. If none of the members
oppose within the stipulated time, the decision is said to be approved. The last page of
the minute of every meeting must be signed. Once minutes are approved and signed,
even a court of law accepts them as evidence of the proceedings.
Seminar
A seminar refers to the discussion in a small group of people belonging to one field
of knowledge. The purpose is to present and discuss results of original research or
advanced study through oral or written reports. It may also be organized for cross
fertilization of ideas. Generally, one person presents a lead paper incorporating his
findings and then there is an in-depth discussion on the material presented.
The other members are knowledgeable and take active part in the discussion. They
closely interact with the lead speaker by expressing their views as seen from their
individual angles. The doubts, if any, are sought to be clarified by putting specific
questions.
In the university context, the seminar refers to the discussion by a group of advanced
level students under the supervision of an instructor.
EXERCISE
Give very short answer to the following questions.
1. Define meeting in short.
2. Write the full form of AGM.
3. What is an agenda?
4. What are the types of minutes?
Give short answer to the following questions.
1. Define meeting. Explain its types.
2. Write the procedure of meeting.
3. What is a minute? Explain its structure.
4. What do you mean by drafting a minute? Mention points that should be kept in
mind while drafting a minute.
5. Explain any four types of company meeting.
6. What is seminar? Explain in brief.
7. What is endorsement of minute?
8. Draft a minute of an imaginary meeting held in your school.
92 Office Practice and Accounting 9
UNIT
8 Book Keeping
Learning objectives:
After the completion of this unit, students will be able
to understand:
• general meaning of book-keeping and accounting.
• relation between accounting and book-keeping.
• meaning and definition of accounting.
• types of accounting.
• basic accounting concept.
• objectives of accounting.
• concept of double entry book keeping system.
• single entry system.
• differences between single entry and double entry.
• meaning of accounting terminologies.
Office Practice and Accounting 9 93
8 Book Keeping
Introduction
Book keeping is that branch of knowledge which tells us how to keep the record
of financial transactions. The process of recording the financial transactions day to
day in proper books of accounts is known as book-keeping. It includes the recording
of journal, posting in the ledgers and balancing of accounts. All the records before
the preparation of trial balance are the subject matter of book-keeping. Thus, book-
keeping may be defined as the art and science of recording transactions in money or
money’s worth so accurately and systematically in a certain set of books, that the true
state of businessman affairs can be correctly ascertained.
R.N. Carter– "Book-keeping is the science and art of correctly recording in the
book of account all those business transactions that result in the transfer of
money or money's worth."
J.R. Batliboi– "Book-keeping is the art of recording business transaction in a
set of books."
So we can say that, Book-keeping is a primary and basic function in the process
of accounting and is concerned with record keeping or maintenance of books of
accounting which is often routined and clerical in nature. It is the science of recording
transactions in money and money’s worth in such a manner that at any subsequent
date, their nature and effect may be clearly understood and as per the need a combined
statement of their result may be prepared.
Accounting
As we discussed above, book-keeping is the art of recording business transactions in
a systematic and scientific manner. The book of original records do not give an idea of
a company’s financial positions. When one has to make a judgment and take decision
regarding the financial position of a firm, the information contained in these books
has to be analyzed and interpreted.
94 Office Practice and Accounting 9
Accounting is concerned with recording, classifying, summarizing the recorded data,
analyzing and interpreting financial transactions and communicating the results
thereof to the internal and external users. Accounting can be defined as science and
art. It is a science because it has some definite objectives to be fulfilled and it is an art
because it prescribes the process through which the objective can be achieved. Non-
financial transactions are not recorded in accounting, i.e. only transactions of financial
nature are the subject matter of accounting. In other words, only those transactions
which are expressed in terms of money are recorded. When financial transactions are
recorded in primary books i.e. journal or subsidiary book, they are to be classified
by grouping the transactions or entries of similar nature at one place. This is done
by opening in a book called ledger. Ledgers are summarized in order to give useful
information to management or other interested parties. This is done by preparing
Trial Balance, Trading and Profit and Loss Account. And to reveal the whole financial
position of the organization, Balance Sheet is prepared. This is done to interpret the
results of the financial transactions and communicating the results.
American Accounting Association (AAA): "Accounting is the process of
identifying, measuring and communicating economic information to permit
informed judgments and decisions by users of the information."
Thus, we can conclude that accounting is the art of recording, classifying and
summarizing of financial transactions in a significant manner and interpreting the
results thereof.
Types of Accounting
Accounting can be divided into three types:
1. Management Accounting 2. Financial Accounting 3. Cost Accounting
Management Accounting
Management accounting is a newly developed accounting discipline. It provides
accounting information to management for planning, decision making and
controlling. Current position and performance are necessary for the organization.
Management accounting provides necessary information for managerial decision
making: by applying different statistical tools like graphs, diagram, index number
etc. It provides the pictures of efficiency, performance and development of previous
action plan. Planning, organizing, directing, staffing, controlling is regular function
of management. Management account is so popular in modern business, because it
provides information to the decision makers.
Office Practice and Accounting 9 95
Management accounting is necessary to provide the accounting information for their
regular or day to day operation of the organization. It provides essential information
to every hierarchy of management to perform management function. So providing
accounting information in a meaningful and understandable way to the manager is
called management accounting.
"Management accounting is the application of professional knowledge and
skill in the preparation of accounting information in such a way as to assist
management in the formulation of policies and in the planning and control of
the operations of the undertaking. - I.C.M.A., London
Financial Accounting
Financial accounting is related with financial transactions of the business concern. It
is concerned with recording, classifying, summarizing, interpreting and presenting
the financial position of the operation for the selected period of time. It provides
the information to external users such as potential investors, creditors, government
authorities, trade union, as well as internal users. It is the process of summarizing
financial data taken from an organization's accounting records and publishing in the
form of periodical reports for the benefit of people outside the organization.
Thus, financial accounting is an art of recording, classifying and summarizing the
financial transactions of a firm in such a manner that its profit and loss and financial
positions are determined at the end of each accounting period and communicated to
the user.
Cost Accounting
Cost accounting is the branch of accounting discipline concerned with development
of cost information related to the activities of an economic entity. This cost information
may be used for future cost development and planning purposes. It may emerge
somewhat routinely not of a carefully designed system which has been developed to
provide information regarding recurring activities, or be the result of a special cost
study directed to an objective not considered in the design of the regular system.
Cost accounting is the processing and evaluation of monetary and non-monetary
data to provide information for external reporting, internal planning and control
of business operations and special analysis and decisions. Thus cost accounting is
regarded as a tool of management which provides the management with detailed
records of cost relating to products, services or, operating activities. It is a process of
accounting for cost from the point of which expenditure is incurred or committed to
the establishment of its ultimate relationship with various cost centers and cost units.
96 Office Practice and Accounting 9
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