BusFi-U1-M1

• • Finance is often associated with money and is considered the custodian of funds.
• • There is no universally accepted definition of finance despite its crucial role in business and non-business organizations.
• • The American Heritage Desk Dictionary defines finance as the management of money, banking, investments, and credit, also considering it a science of managing money and assets.
• • This book (Busfi) defines finance as a science and art, emphasizing the correct application of economic and accounting concepts and principles.
• • Finance, as per this definition, involves the system, structure, and processes of managing, allocating, and utilizing financial resources, investments, and expenditures.
• • Finance as a Science:
  • Deals with and is strictly governed by financial facts and truths.
• • Finance as an Art:

  Financial services continually change and develop in response to the evolving and complex nature of business operations.
• Finance as a Science: FT.FISB.ARFS.RFBFP

  • Deals with and is strictly governed by financial facts and truths.
• • Economics, as a social science, focuses on the efficient utilization of scarce resources to satisfy human needs and wants.
• Economic variables such as price, demand, supply, income, and expenditures are key elements in the development of economic theories and principles.
• • Accounting is the art of recording business transactions and dealing with the preparation of financial statements.
• • The recording process follows the Philippine Financial Reporting Standards (PFRSs), aligning with international standards.
• Financial statements, the final output of the accounting process, offer valuable information to finance.
• • Accounting is considered the language of both business and finance.
• • Finance in business provides a systematic, structured, and procedural mechanism for various financial activities.
• • Clear financial procedures guide human resources towards the ultimate objective.
• • Management involves the efficient handling of business resources, especially those of a financial nature.
• • Allocation refers to the wise distribution of financial resources to different functional areas.
• • Proper assignment of funds includes both current and noncurrent assets.
• • Correct sourcing of funds is based on the concepts of risk and return.
• • Financial resources
  •  refer to the funds of a business which are provided by the owner or by creditors. 
• • Financial investments 
  • are resources that are expected to provide income and achieve appreciation or growth of the business. 
  • The financial benefits that are usually derived from financial investments come in the form of interest and bonds. Large businesses are heavily engaged in putting much funds in the investment.
• • The financial expenditures 
  • of a business may cover the operating expenditures and the capital expenditures.
  • Operating expenditures are period costs that include business expenses such as salaries, electricity and water, traveling expenses, and the kile. Capital expenditures involve the acquisition or construction of buildings, machinery, processing plants, and land. Exercises
• • Private Finance:
  • Management of financial resources for private individuals, non-governmental organizations, and private organizations.
• • Public Finance:
  • Allocation of government income from taxation or borrowings and government expenditure based on approved national and local appropriation or budget.
  • Term also referred to as fiscal administration.
• In the Philippines, the Department of Finance (DOF) plays a primary role, working closely with other national government agencies.
• • Public Finance Components in the Philippines:
  • Department of Finance (DOF)
  • Bureau of Internal Revenue (BIR)
  • Bureau of Customs (BOC)
  • Land Transportation Office (LTO)
  • Land Transportation Franchising and Regulatory Board (LTFRB)
  • Department of Budget and Management (DBM)
  • Bangko Sentral ng Pilipinas (BSP)
  • Securities and Exchange Commission (SEC),
• • Personal Finance:
  • Sub-category of private finance focusing on the management of personal resources.
  • Individual income sourced from compensation, professional activities, or sole proprietorship.
  • Allocation based on personal needs such as household expenses, education, healthcare, and property acquisition.
• • Business Finance:
  • Area of finance focusing on the handling and management of financial resources of a business organization.
• • Financial Management:
  • Focuses on capital budgeting decisions and financing schemes for asset acquisition.
  • Answers questions like what type of asset to acquire and what financing scheme to use.
• • Capital Market:
  • Studies different financial institutions and their functions, providing assistance to private and public borrowers.
  • Includes the study of the cost of borrowing funds, such as interest and other financing charges.
• • Financial Investment:
  • Involves business decisions about the value and price of stocks and bonds, portfolio analysis, market analysis, security analysis, and investor behavior.
• In business organizations, finance has elevated its status as one functional area. In a typical arrangement of a business organization, four functional divisions are involved: POD.GAHD.FD.MD

  1. production and operation division
  2. general administrative or human resource division
  3. finance division
  4. marketing division
• • Financial Traffic Officer:
  • Manages and oversees all business transactions with monetary considerations.
• • Shock Absorber for Budgetary Requests:
  • Acts as a crucial intermediary for budgetary requests and requirements from other functional units.
• • Operating Decisions Overview:
  • Financial decisions impacting routine operating activities.
• • Characteristics of Ordinary Business Activities:
  • Nature of business determines focus (e.g., buying, selling, operating expenses).
• • Operating Decisions for a Merchandising Business:
  • Financial officer focuses on buying, selling, and operating expenses.
• • Operating Decisions for a Bank:
  • Bank's activities include providing funds to borrowers and safeguarding deposits.
• • Financing decisions involve raising or acquiring funds from external sources, not from regular business operations