Grade 8 Commerce Notes PDF

Commerce Grade 8 (1st Term Notes) Ｐａｇｅ １ ｏｆ ２１ UNIT 01 BUSINESS ACTIVITY LEARNING OUTCOMES i. Business Entity ii. Trade iii. Types of economic systems iv. Types of busines...

Commerce Grade 8 (1st Term Notes) Ｐａｇｅ １ ｏｆ ２１ UNIT 01 BUSINESS ACTIVITY LEARNING OUTCOMES i. Business Entity ii. Trade iii. Types of economic systems iv. Types of business organisations a. Private sector b. Public sector Ｐａｇｅ ２ ｏｆ ２１  BUSINESS ENTITY An individual or a group of individuals working together to produce goods and services required to fulfill human needs and wants. * These goods and services help to satisfy people’s needs and wants. Why are businesses important?  They make profits: Businesses earn money, which benefits for the people who invested in.  They meet needs and wants: Businesses provides goods and services that help us to live comfortably.  They create opportunities: Businesses provide employment to people and pay them salaries or wages.  They improve our lives: By providing goods and services, businesses help to increase the quality of life. Needs and wants Needs: Basic requirements for survival. Needs are limited e.g. (Basic needs) Food, Clothing and Shelter (Other needs) Education, Health Security, Transportation Communication and Entertainment Wants: Desire for goods and services. We would like to have, but not essential. Wants are unlimited. e.g. Needs Wants Food Bread/Cake/Ice cream Clothes Uniforms/Shirts/Sarees Ｐａｇｅ ３ ｏｆ ２１ Activity 01 Write down two differences between needs and wants. (i).............................................................................................................................. (ii).............................................................................................................................. Activity 02 Write down different ways you follow to satisfy the following needs. Needs Wants Food Clothing Shelter Health Transportation TRADE When one party exchanges goods and services with another party, it is known as “Trade”. Classification of Trade: Wholesale Domestic Trade Retail Trade Import International Trade Export Ｐａｇｅ ４ ｏｆ ２１ Domestic Trade When people exchange goods and services within the borders of a country, is known as “Domestic Trade”. Accordingly domestic trade can be categorised as Wholesale Trade and Retail Trade. Wholesale Trade: Those who are involved Purchase of goods with the intention of resale. Retail Trade: S e l l i n g g o o d s a n d s e r v i c e s for final consumption. International Trade When countries trade or exchange goods and services b e t w e e n t w o o r m o r e c o u n t r i e s , is called “lnternational / Foreign Trade”. Accordingly International Trade can be categorised as Export Trade and Import Trade. Export Trade: When a country sells what it produces to other countries. e.g. Sri Lanka exports tea to china. Import Trade: When a country purchases products from other countries. e.g. Sri Lanka imports motor vehicles from Japan Aids to trade These are supporting services which help the smooth functioning of the trading process. 1. Finance and Banking 4. Transportation 2. Communication and Advertising 5. Insurance 3. Warehousing Ｐａｇｅ ５ ｏｆ ２１ 1. Finance and Banking The services provided by the bank to businesses to conduct their activities successfully are known as are banking services. * A business cannot start, continue or expand without money. * Banks and other financial institutions lend money to business organisations to start and expand their operations. e.g. Commercial Bank, HNB, NDB, BOC, HSBC, LOLC, Softlogic Finance. * Banks provide services related to deposits. e.g Savings accounts, Fixed deposits, Current Accounts * Banks provide services related to electronic cash. e.g. Credit cards, Debit cards, Automated Teller Machine (ATM) cards Activity Collect some examples for Credit/Debit/ATM cards issued by various banks. 2. Communication and Advertising Communication * Communication among internal and external parties of a business is important for continuous functioning of the business. * Today, with advanced technology, businesses can communicate with any party in a short period of time using, email, virtual meetings (Ms Teams, Zoom and Skype）, text messages, etc. Advertising * Promoting the products /services of a business to its potential customers is known as “Advertising”. * Advertising could be done through, internet, newspapers, social media, leaflets, billboards etc. Activity Write two benefits of advertising to - the business:.......................................................................................................... - the customer:.......................................................................................................... Ｐａｇｅ ６ ｏｆ ２１ 3. Warehousing Warehousing is the process of storing goods before they are sold or further distributed to relevant destinations. Warehouses: Large buildings used for storing goods before they are sold. 4. Transportation * This is an important aid which helps a business in moving goods from one location to the other. * Selecting the most suitable, cost effective, efficient and safe method of transportation is important to an organisation. Activity Write two benefits of transportation to a business....................................................................................................................................................................................................................................................................................... 5. Insurance * lt is an agreement that provides financial protection or reimbursement against any losses incurred by the organisation. * There are two parties to an agreement namely insurer (the insurance company that provide insurance）and the insured (the business entity/individual covered by insurance). * The annual payment businesses make to the insurance company for a contract of insurance is known as the“premium”. Activity Collect some Insurance Policies issued by various insurance companies in Sri Lanka. Ｐａｇｅ ７ ｏｆ ２１ TYPES OF BUSINESS ORGANISATIONS Business organisations operate in two sectors. 01. Private sector 02. Public sector Differences between the private and public sector: Private Sector Public Sector Aim To earn profit. To provide a service to the public. Capital Through owners, Through taxation.(Money savings, shares, collected from the loans. government) Officials appointed by the Control Owners / Board of Directors. government. Individuals / Group of The public.(The government Ownership Individuals. represents the public) Sole trader Multinationals Partnership Franchise Limited liability companies Joint ventures Ｐａｇｅ ８ ｏｆ ２１ 1. Sole trader Businesses owned by an individual are known as Sole trader. Features of a Sole trading business: * The business is owned and controlled by a single person. * Capital should be invested by the owner. * Owner can employ other people. Advantages and disadvantages of a Sole trader business: Advantages Disadvantages Long hours of work and will Independent decision making. not be able to assess the quality of decisions. Can enjoy the profits alone. Unlimited liability. Good rapport with Difficult to raise capital and employees and customers. invest in new technology. Can make quick decisions. No continuity. 2. P artnership The relationship among persons conducting a business in common to earn profits. Features of a Partnership Business: * Can have two or more partners. * Partnership Ordinance of 1890 affects the Partnerships. * A partnership agreement may contain the following factors: 1. Capital introduced by each partner. 2. Profit percentage for each partner. 3. Division of responsibilities. 4. Nature of business. Ｐａｇｅ ９ ｏｆ ２１ Advantages and disadvantages of a Partnership Business: Advantages Disadvantages Better quality of decisions. More rules and regulations to be followed. Expansion would be easier. Profit will be shared among partners. Losses can be shared. Unlimited liability. Work can be divided. Disputes might arise when working together. Able to invest in new All partners should agree technology. before initiating a plan. 3. Limited liability companies * Owners have limited liability for the business activities. * There is continuity. * Capital invested through shares under certain regulations. * Owners of such businesses are called “shareholders”. * There are two types of limited liability businesses. They are, 1. Private Limited Business 2. Public Limited Business Features of Private Limited Company (Pvt): * Shares will be sold only among family and friends. Not to general public. * They are usually family owned businesses. * Shareholders can appoint the board of directors. Advantages and disadvantages of Private Limited Company (Pvt): Advantages Disadvantages Limited liability. Cannot sell shares to the public. Approval of shareholders is The founder can have more required before transferring a control over the business. share ownership. There is continuity. Limited capital when comparing with PLCs. Can raise more capital and invest in new technology. Ｐａｇｅ １０ ｏｆ ２１  Features of Public Limited Company(PLC): * Large scale businesses. * Must publish accounts to the public. * More rules and regulations to be followed. * Can sell shares to the public. * Shareholders can appoint the board of directors. Advantages and disadvantages of Private Limited Company: Advantages Disadvantages Can achieve economies of scale. More regulations by the government. Can raise more capital as they Difficulty in managing and can sell shares to the public. controlling the business. Freedom in purchasing and Diverse of ownership and control. selling shares. Continuity Accounts must be published in the form of an Annual Report. 4. Joint Venture Two or more businesses come together to work on a project or create a new business. Features of Joint Venture: * During the project they share, 1. capital 2. Risks 3. profit e.g. Uber and Volvo, Sony and Ercison’s, Microsoi and GE etc * Temporary or long term Advantages and disadvantages of Joint Venture: Advantages Disadvantages All the expenses and costs Profit should be shared. unit0 1 can be shared.(shared resources) Risks can be shared. (shared Disagreements could arise risks) when working together. Clash of cultures or ways of Knowledge and expertise doing business could be could be shared. different from each organisation. Ｐａｇｅ １１ ｏｆ ２１ Business Activity 5. Franchise A business model where one company (the franchisor) allows another person or business (the franchisee) to operate using its brand name and business methods. Features of a Franchise: * These businesses do not expand by themselves, rather they expand the business through the franchisee. * Franchisee should pay the franchiser a royalty fee for using the brand name to operate a similar business. * The franchisor provides guidance and support to the franchisee. e.g. McDonalds, KFC, Starbucks, Marriott lnternational etc. Advantages and disadvantages to the Franchisor: Franchiser is the owner of the brand who grants consent to use the brand name to another group or party through an agreement. Advantages 1. Receives a royalty fee. 2. Expansion is easy and quick.(easy expansion) 3. An additional income could be gained by selling additional products to franchisee. (extra income) Franchisor Disadvantages 1. lt could harm the reputation and the image of the brand if the franchisee doesn't maintain the business properly.(Reputation risk) 2. Franchisee can keep the profit earned using the franchisor's brand name. Ｐａｇｅ １２ ｏｆ ２１  Advantages and Disadvantages to the Franchisee: Franchisee is the individual, group or business who purchases the brand name from the franchisor to operate a similar business. Advantages 1. Gets to operate a well known brand. 2. Advertising the products is being done by the franchisor. (Advertising support) 3. Employees will be trained by the franchisor. Franchisee Disadvantages 1. Less decision making as the business model is being designed by the franchisor.(less control) 2. Less freedom in decision making as the franchisee has to follow the business model of the franchisor. 3. Should pay a royalty fee/ percentage of annual sales to the franchisor. (Royalty fee) 6. Multinational Companies (MNCs) A Multinational Company (MNC) is a business that operates in more than one country. e.g. Apple, Microsoft, Amazon, Google etc. They have offices, factories or stores in multiple countries around the world. Reasons why business organisations want to become multinational: 1. To increase the number of customers. 2. To identify and use labour and raw material at a low cost. 3. To obtain government grants. Ｐａｇｅ １３ ｏｆ ２１  Public Sector Organisations State Types of Business organisations in Ownership the public sector: State Control Coverage These are organisations which are owned and managed by the state/Government. e.g. Ministry of Education, Bank of Ceylon (BOC）, Sri Lanka Army, Ceylon Electricity Board. Autonomy Public Accountability Unit 01 - Activities Activity1 Fill in the blanks using the words given below. a. A multinational company is a business that has operations in more than one country. …………………………………. is a world famous multinational company. b. Sri Lanka’s largest public corporation is …………………………………. c. …………………………………. is a country with a Mixed Economy. d. Organisations use insurance to protect its assets. ……………………………. is considered as one of the best insurance companies in Sri Lanka. e. …………………………………. is known as the“Father of Economics”. (Ceylon Petroleum Corporation, Adam Smith, South Korea, AlA lnsurance Company, Amazon） Ｐａｇｅ １４ ｏｆ ２１ Activity 2 Solve the crossword puzzle using the clues given below. Across 1. countries/businesses producing what they are Down best at using their limited resources. 1. The main economic problem arising due to 4. The economic system where both the private limited resources to fulfil the unlimited wants. and the public sectors operate collaboratively. 2. Belarus, lran and Cuba are countries with 5. Type of business organisation where generally ---------------------- economy where businesses 02 -20 individuals can contribute to capital in are controlled by the government. different or equal proportions while 3. Aid to trade which protects businesses from sharing profits and liabilities. losses due to various events that may occur in 6. S oftlogic introduced the international the future. brands such as Burger king and Baskin- 7. Nike, Microsoft and Apple are some of the world Robbins to sri Lanka and is therefore famous ------------------------- companies which considered as the has operations in countries other than its home ------------------- who pays the owner of these country. brands to use the brand names and operate 9. The place used for storing goods depicted by similar businesses in the country. the image given below; 8. Google and NASA developing Google Earth is an example of a Joint- --------------------. 9. ln 1961, American and British oil companies Figure 1.34 created Ceylon Petroleum Corporation and also Bank of Ceylon was taken over by the state in the process of--------------------. Ｐａｇｅ １５ ｏｆ ２１ UNIT 02 THE INTERNAL AND EXTERNAL ENVIRONMENT OF A BUSINESS LEARNING OUTCOMES i. Internal Environment of a Business a）internal operations and functions ii. External Environment of a Business a）PESTLE iii. Organisational Structure iv. Use of lnformationTechnology in Business Ｐａｇｅ １６ ｏｆ ２１ THE INTERNAL AND EXTERNAL ENVIRONMENT OF A BUSINESS A business organisation has two types of environments. They are, 1. lnternal Environment 2. External Environment The Internal Environment of a Business All the internal operations and functions that take place within the organisation to help the organisation achieve its objectives is known as the lnternal environment of a business There are four main internal functions that help a business to achieve its objectives. They are, 1. Marketing 3. Finance 2. Production and operation 4. Human Resources 1. 2. Manufacturing Sales and and production marketing Product or Service 4. Human resources Ｐａｇｅ １７ ｏｆ ２１ The Internal Operations and Functions: Marketing Production and Operation * The role of marketing is to satisfy * The role of this department is to customers, needs / wants while produce goods and services to making a profit. meet the demand of the * The functions of marketing are, customers. 1） Conducting market research. * The functions of production and (Finding out what customers operations are, want) 1） purchasing quality raw 2）Market segmentation. material. (Dividingcustomersinto groups 2） Deciding the method of basedontheirneeds) production (Labour or 3) Deciding the marketing mix. capital intensive）. (Deciding product, price, 3） producing a quality output. place and promotion) Finance Human Resources * The role ofHuman Resources * The role of finance department is to department is to manage the manage finances/money and ensure people who work in the sufficient cash is available. business which is considered * The main functions of this department are, as one of the most valuable 1） Manage cash inflows and outflows. asset in the business. 2） Reduce costs/expenses. * The main functions of HR is as 3） Improve profitability. follows; 1）Recruitment and selection. 2）Training and Development. 3）pay (salaries andwages）. 4）Health, safety and well-being. 5）Employee relations. 6）Redundancy and Dismissal. Ｐａｇｅ １８ ｏｆ ２１  THE EXTERNAL ENVIRONMENT OF A BUSINESS All the activities and changes that take place outside a business, that influence and impact its operations. These factors can have a big impact on a business success. Importance of analysing the External Environment: 1. Enhanced ability to anticipate problems that could arise in the long term.(Predict problems) 2. More flexibility and adaptability in plans as they reflect greater awareness. 3. Ability to act upon government laws. (Follow laws) 4. Ability to identify future needs and anticipate new products. (Plan for the future) 5. Allocate resources more efficiently. There are six external environmental factors that affect business. They are known as “PESTLE”. Ｐａｇｅ １９ ｏｆ ２１ Political Environment This refers how the government/state influence the operations of a business. e.g. Tax policy, environmental regulations, political stability. Economic Environment This refers to all the economic factors that influence the buying behaviour of customers which create an impact on businesses. e.g. Exchange rates, inflation, global economy, employment level, cost of living etc. Value of money falls Prices Rise What is Inflation? Inflation: A general increase in prices of goods as services. This reduces the purchasing value of money. Products Increase in Drop in Inflation become price of goods unaffordable sales Ｐａｇｅ ２０ ｏｆ ２１ Social Environment This refers how people’s behaviors, cultures and lifestyles influences businesses. e.g. - Trends in what people like to buy - Cultural values - Religious beliefs Technological Environment This refers to newtechnological advancements that could create an impact to businesses. e.g. Robotics, Al (Artificial lntelligence), Modern equipment/machines. Legal Environment This refers to all the legal surroundings that affect business activities. Thisenvironment helpsthebusinesstounderstandtheirrightsandresponsibilities. e.g. Laws and regulations enacted through legislations. (Employment law, consumer law, import/export law）. Environmental/Ecological Environment This refers to all the changes in the natural environment that affect businesses. This environment helps the business to plan for and manage risks related to natural world. e.g. pollution,natural disasters, pandemics,depletion of natural resources. Ｐａｇｅ ２１ ｏｆ ２１