Commerce 7100 Supplementary Study Notes PDF

Commerce 7100 Supplementary Study Notes 0 MINISTRY OF EDUCATION LUSAKA PROVINCE COMMERCE 7100 SUPPLEMENTARY STUDY TEXT FOR GCE/‘O’ LEVEL...

Commerce 7100 Supplementary Study Notes 0 MINISTRY OF EDUCATION LUSAKA PROVINCE COMMERCE 7100 SUPPLEMENTARY STUDY TEXT FOR GCE/‘O’ LEVEL 2nd Edition NOT FOR SALE NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 1 COMMERCE7100 SUPPLEMENTARY STUDY TEXT FOR GCE/ ‘O’ LEVEL SECOND EDITION Authors Richard Fisonga, MBA Fin., ZiCATech, BBA Ed., Dip. Ed. Head of Business Studies Department – Highland Secondary School, Winner of the 2018 Outstanding Educator Initiative National Award in Financial Literacy, Past Chairperson of the Business Studies Teachers Association of Zambia, Lusaka Province James Gwenani, MBA Fin., ZiCATech, BBA Ed., Dip. Ed. Deputy Headteacher - Arakan Boys Secondary School, Formerly Head of Business Studies Department - Nelson Mandela Secondary School, Past Chairperson of the Business Studies Teachers Association of Zambia, Lusaka Province Past National Treasurer General for the Business Studies Teachers Association of Zambia. Edgar Shiluwe, BBA Ed., Group Dip. Marketing, Dip. Ed. Deputy Headteacher, Roma Girls Secondary School, Formerly Head of Business Studies Department - Roma Girls Secondary School, Winner of the 2018 Outstanding Educator Initiative National Award in Financial Literacy, John Kaputula, MBA Fin., ZiCALic, BBA Ed., Dip. Ed. Head Teacher, Mahatma Gandhi Combined School, Formerly Head of Business Studies Department - Chilenje South Secondary School, Past Vice Secretary General for the Business Studies Teachers Association of Zambia, Lusaka Province BUSINESS STUDIES TEACHERS ASSOCIATION OF ZAMBIA LUSAKA PROVINCE NOT FOR SALE NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 2 ©2022 BUSTAZ Lusaka Province Commerce7100 - A Supplementary Study Text for GCE/’O’ Level 2nd Edition The right of Richard Fisonga, James Gwenani, Edgar Shiluwe and John Kaputula as authors of this work under the umbrella of the Business Studies Teachers Association of Zambia has been asserted by them. This supplementary book is not for sale, however express permission for free distribution and education purposes has been granted. Disclaimer Although the authors have made every reasonable effort to ensure that the information in this book was correct at press time, they make no express or implied representation, with regard to the accuracy of the content herein and hereby disclaim any legal responsibility or liability to any party caused by errors or omissions. Note that some pictures of products and services that are referred to may be either trademarks and/or registered trademarks of their respective owners. The authors make no claim to these trademarks. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 3 PROVINCIAL EDUCATION OFFICER’S STATEMENT The Ministry of Education envisions to achieve access to high quality education across the nation and Lusaka province is no exception. One of the main indicators of quality education is Examination results to which the availability of quality books is irrefutably one of the main contributing factors. There is therefore a need at all times to have material written with the teacher and learner in mind and which adheres to the official syllabus and the associated learner outcomes. The production of this supplementary book by the BUSTAZ is one of the provincial initiatives to improve teacher and learner performance in class assessments and National Examinations. The book has been written in such a way as to meet these needs and ensure that teachers and learners have access to up to date subject content. The association and authors deserve commendation for the job well done. This initiative started in 2018 when the first edition of this book was produced. The province would therefore like to express sincere thanks to the then, Provincial Education Officer, Mr. Paul Ngoma, the Principal Education Standards Officer Mrs. Grace Sinkolongo and the Senior Education Standards Officer – Business Studies, Dr. John S. Chola, for the administrative support given to the association. I sincerely believe that this supplementary material will go a long way in achieving the goals of the Ministry of Education and improve learner performance in Lusaka Province and beyond. School administrators are therefore encouraged to distribute the material to teachers and learners in hard and soft copy at no cost to the recipients. Allan Lingambe PhD Provincial Education Officer LUSAKA PROVINCE NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 4 FOREWORD The compilation of this supplementary book was necessitated by the need to provide comprehensive material in the subject area to cover all aspects of the syllabus in order to improve examination results. The authors ensured that the contents of the book conformed to the requirements of the official Curriculum Development Centre (CDC) Syllabus as well as the Examination Syllabus for the Examinations Council of Zambia. The information contained in this supplementary book is professionally written by qualified and experienced teachers of the subject. Teachers and learners are therefore assured that the information is well researched and relevant to the current curriculum and lesson outcomes as contained in the syllabus. The book has been developed with the teacher and learner in mind. The teacher will be equipped with a well summarised all-in-one resource that will enhance their preparedness for effective delivery of lessons in class, thus improving teacher performance. The learner, on the other hand will find this book easy to use with its well summarised notes and easy to understand illustrations which will aid their understanding of concepts. This will equip them with knowledge, values and skills necessary for the business environment and in turn help to improve learner performance in the final examinations. This book will prove to be a helpful resource for both teachers and learners in their quest to achieve the intended syllabus outcomes and improve results in Commerce. Lenny N. Longwe (Mrs.) Senior Education Standards Officer – Business Studies NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 5 ACKNOWLEDGEMENTS The authors would like to acknowledge the help and support received from the Provincial Education Officer, Dr. Allan Linganbe for the encouragement to have this material edited and the permission to have it distributed in soft copy to teachers and learners. We also acknolwedge the professional help and advise received from the Senior Education Standards officer, Mrs. Lenny Longwe in the preparation of the Second edition of this book. We appreciate the efforts of many teachers who provided reviews and advice on a number of topics, chief among them, Mrs. Joyce Kalala Mulimbika of Highland Secondary School. Special thanks to key stakeholders in Business and Financial Education such as the Curriculum Development Centre (CDC), Examinations Council of Zambia (ECZ), Securities and Exchange Commission (SEC), Pensions and Insurance Authority (PIA), Competition and Consumer Protection Commission (CCPC), the Zambia Institute of Chartered Accountants (ZICA) and the Bankers Association of Zambia (BAZ). These organisations availed valuable information through seminars, workshops and electronic means without which some topics in this book could not have been updated. This book is a result of many years of the authors’ practical teaching experiences in the classroom. The bigger part of the book is a compilation of the authors’ self-generated notes. Other resources used are here acknowledged which have been used particularly for education purposes as provided for under Fair Use. They include: Abbott K. et al, (2007), Business Law, South Western Cengage learning EMEA Anderson L - (1972), Commerce around us, Longman, Harare, Zimbabwe Hamakoko R., (2015), Senior Secondary Commerce, Grade 10, MK Publishers, Zambia Kotler P. et al, (1996), Principles of Marketing, Prentice Hall, UK Lobley D., (1993), Success in Commerce, Holder Education, UK Matimba A., (2009), Distinction in Commerce, Matimba A, Zambia Matindike G., (2000), Focus on Commerce, College Press Publishers (Pvt) Ltd, Zimbabwe Whitehead G. (1969), Commerce Made Simple, W.h Allen & Co.ltd, UK. Wokarochi J. B., (2016), Commerce A Complete Course, Salama Publishers, Botswana NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 6 CONTENTS INTRODUCTION TO COMMERCE..................................................................................... 10 What is Commerce?........................................................................................................ 10 Importance of Commerce................................................................................................ 10 The Branches of Commerce............................................................................................ 10 Career Prospects in Commerce....................................................................................... 12 PRODUCTION.................................................................................................................... 13 The Meaning of Production.............................................................................................. 13 Human Needs and Wants............................................................................................ 13 Goods and Services..................................................................................................... 13 Branches of Production................................................................................................... 13 Methods of Production..................................................................................................... 14 Factors of Production...................................................................................................... 15 Types of Goods............................................................................................................... 15 Production and the Chain of Distribution.......................................................................... 16 Production and Commerce versus Environment.............................................................. 16 Effects of Production on the Environment........................................................................ 16 Possible Solutions to the Effects of Commerce on the Environment................................ 17 CONTRACTS..................................................................................................................... 18 Importance of Contracts.................................................................................................. 18 Parties to a Valid Contract............................................................................................... 18 Elements of a Valid Contract........................................................................................... 18 HOME TRADE.................................................................................................................... 20 Retail Trade..................................................................................................................... 20 Functions of a Retailer................................................................................................. 20 Factors to consider when establishing a Retail Outlet.................................................. 20 Types of Retailers........................................................................................................ 21 Wholesale Trade............................................................................................................. 25 Functions of a Wholesaler............................................................................................ 25 Types of Wholesalers................................................................................................... 26 DOCUMENTS USED IN HOME TRADE............................................................................. 28 Business Documents used in Home trade....................................................................... 28 Trade Discount and Cash Discounts............................................................................... 32 NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 7 BUYING AND SELLING ON CREDIT................................................................................ 34 Reasons why Businesses Purchase on Credit................................................................. 34 Methods of buying and selling on credit........................................................................... 34 Credit Sale Agreement or Deferred Payment............................................................... 34 Hire Purchase.............................................................................................................. 35 The differences between Hire Purchase and Deferred Payment under Credit Sales.... 36 Consumer Protection....................................................................................................... 36 Reasons for Consumer Protection............................................................................... 37 Consumers Rights....................................................................................................... 37 Organisations that protect Consumers......................................................................... 37 FOREIGN TRADE.............................................................................................................. 39 Meaning of Foreign Trade............................................................................................... 39 Importance of Foreign Trade........................................................................................... 39 Difficulties/Barriers/Problems faced by traders in Foreign Trade...................................... 40 Distinctions between Home and Foreign Trade............................................................... 40 Documents used in Foreign Trade................................................................................... 41 Zambia Revenue Authority (ZRA).................................................................................... 42 Functions of ZRA, Port Authority and Customs Authority............................................. 43 Why Countries impose Tariffs and Trade Restrictions?................................................ 44 Requirements for a Good Harbour or Seaport.............................................................. 44 Bonded Warehouse..................................................................................................... 44 Means of payment in Foreign Trade................................................................................ 45 Balance Of Trade............................................................................................................ 47 Balance of Payment........................................................................................................ 47 BUSINESS UNITS.............................................................................................................. 50 The Private Sector........................................................................................................... 51 Sole Proprietor............................................................................................................. 51 Partnership.................................................................................................................. 51 Companies................................................................................................................... 54 Registration Process in the Formation of Companies................................................... 59 Other Company Matters............................................................................................... 61 The Public Sector............................................................................................................ 62 Public Corporations...................................................................................................... 62 Differences between a public limited company and a public corporation...................... 63 NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 8 THE STOCK EXCHANGE.................................................................................................. 64 Purpose of the Stock Exchange....................................................................................... 64 Primary and Secondary Trading on the Stock Exchange................................................. 65 Types of Securities on the Securities Exchange.............................................................. 65 Equity Securities.......................................................................................................... 65 Debt Securities............................................................................................................ 67 THE LUSAKA SECURITIES EXCHANGE.......................................................................... 70 Purpose/Functions of the Lusaka Securities Exchange................................................... 70 The Main Players on the Stock Exchange....................................................................... 70 The Securities and Exchange Commission of Zambia..................................................... 71 The roles of the Securities and Exchange Commission is to:....................................... 71 BANKING........................................................................................................................... 73 Banking Financial Institutions.......................................................................................... 73 Non-Banking Financial Institutions................................................................................... 73 Services provided by Banking Institutions........................................................................ 73 Types of Accounts offered by Financial Institutions......................................................... 80 Documents used in Banking............................................................................................ 82 Means of Payment........................................................................................................... 82 The Central Bank............................................................................................................ 85 Functions of the Central Bank...................................................................................... 85 The Bank – Cheque Clearing System.......................................................................... 85 INSURANCE...................................................................................................................... 88 How Insurance works...................................................................................................... 88 Importance/Purpose/Functions of Insurance.................................................................... 88 The Principles of Insurance............................................................................................. 89 Insurable and Non Insurable Risks.................................................................................. 92 Types of Insurance Cover................................................................................................ 92 Insurance Brokers........................................................................................................... 97 COMMUNICATION............................................................................................................. 98 Reasons for Communication........................................................................................... 98 Postal Services................................................................................................................ 98 Telecommunication Services......................................................................................... 101 TRANSPORT.................................................................................................................... 106 The importance of transport to an individual.................................................................. 106 Factors affecting the choice of Method of Transport...................................................... 106 NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 9 Methods of Transport.................................................................................................... 107 Road Transport.......................................................................................................... 107 Rail Transport............................................................................................................ 108 Sea Transport............................................................................................................ 109 Air Transport.............................................................................................................. 110 Pipelines.................................................................................................................... 111 Documents used in Transport........................................................................................ 111 WAREHOUSING.............................................................................................................. 113 The Importance of Warehousing.................................................................................... 113 Types of Warehouses.................................................................................................... 113 Manufacturer’s Warehouses...................................................................................... 113 Wholesaler’s Warehouses......................................................................................... 113 Retailer’s Warehouses............................................................................................... 114 Bonded Warehouses................................................................................................. 114 ADVERTISING................................................................................................................. 115 Features of Advertising.................................................................................................. 115 Modes of Advertising/Advertising Media........................................................................ 115 Factors Considered When Choosing Advertising Media................................................ 119 Methods of Appeal......................................................................................................... 119 Types of Advertising...................................................................................................... 120 Informative Advertising............................................................................................... 120 Persuasive Advertising............................................................................................... 120 Generic/Collective Advertising................................................................................... 121 Competitive Advertising............................................................................................. 121 Advantages of Advertising............................................................................................. 122 Disadvantages of Advertising........................................................................................ 123 Advertising Agencies..................................................................................................... 123 Control of Advertising.................................................................................................... 124 NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 10 INTRODUCTION TO COMMERCE What is Commerce? Commerce is concerned with the distribution and actual exchange of goods and services and also the commercial services that play a role in the distribution of goods and services to satisfy consumers’ needs and wants. Commerce involves Trade and Aids to trade. It is concerned with the distribution of goods and services to satisfy human needs and wants. Trade is the buying and selling of goods and services with a view of making profit. Aids to trade (commercial activities/services) are activities that help trade to take place such as; Warehousing, Advertising, Banking, Transport, Insurance and communication. Importance of Commerce To an individual  Commerce helps individuals to access goods and services which they use in satisfying their needs and wants.  Commerce is a source of employment to those employed in various commercial activities.  Commerce is a source of income to people that engage in businesses (commercial activities).  Commerce improves peoples’ standards of living by enabling them to acquire improved goods, tools, machinery and technology. To a nation  Commerce helps nations to grow their economics, it is a source of income and foreign exchange.  Commerce promotes industrial development.  It helps a nation to develop good relations with other countries.  It enables nations to obtain advanced technologies from other countries.  Commerce helps nations to specialize and sell surplus goods to other countries profitably.  Commerce enables countries to overcome shortages of seasonal goods during the off- season time as they are able to buy these from other countries. To the world  Commerce promotes interconnections among nations through transport, communications and other commercial services.  Commerce encourages international trade.  Commerce promotes globalization and international relations. The Branches of Commerce Commerce Trade Aids to Trade Home Foreign Advertising Banking Communication Insurance Transport Retail Wholesale Export Import Warehousing NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 11 Trade Trade is the buying and selling of goods and services with the intention of making profit. There are two types of trade namely; home and foreign trade. Home trade – Also known as Domestic Trade is the buying and selling of goods and services within a country. It consists of Wholesalers and Retailers. Wholesalers buy goods in bulk from manufacturers and sell them to retailers or directly to consumers. Retailers in turn sell the goods in small quantities to consumers. Foreign trade – Also Known as International Trade is the buying and selling of goods and services across the geographical boundaries of a country. It is divided into import trade and export trade. Import trade is the buying of goods and services from other countries while export trade is the selling of goods and services to other countries. Aids to Trade or Commercial Services Aids to trade are the activities/services that help to make trade possible. Without them, the work of manufacturers would be futile as it would be almost impossible to distribute goods and services to the consumers. Aids to trade include: Warehousing, Banking, Advertising, Insurance, Communication, and Transport. These services are also known as Commercial Services. The following are the ways in which the Aids to Trade help trade to take place: Advertising - involves the use of the art of persuasion to educate and inform the public on goods and services available. It also persuades customers to buy goods and services through various techniques. Advertising helps:  to obtain information on sources of goods and services.  to persuade potential customers to buy goods and services available on the market  to increase sales  to announce job vacancies  to give information to customers on the various goods in stock, price and location.  Advertising is done through different media such as: Radio, Television, Newspaper, Magazines, Business Journals, Billboards, internet, exhibitions and trade fairs, cinema etc. Banking – is an Aid to trade that helps to safeguard funds through various accounts offered and the provision of finance. Banking is an important aid to trade because:  It is essential for depositing income from sales for safekeeping.  It aids in receiving and making payments through credit transfer, standing orders, bills of exchange, cheques and direct debit.  It provides finance for the traders through loans and overdrafts  It provides advice to traders on business investment  Banking services are offered by financial institutions such as Commercial banks, Micro- finances, Bureau de changes, Building Societies etc. Communication – is a service which enables individuals and organisations to contact each other and exchange information. Communication is important because:  It helps in contacting suppliers of raw materials and customers  It helps in settling queries  It allows customers to place orders  It helps in making arrangements for the transportation of goods  it helps in organising and carrying out surveys such as market research  It helps in making contracts and other sale agreements  Communication is carried out through telephone, Electronic-mail, telex, fax, internet, letter, data post, cellular phone. Insurance – is an aid to trade which provides cover to individuals, businesses and their property against risks like fire, accidents, theft etc. Insurance is important because:  It provides cover and compensation against activities that may cause financial loss.  It helps in spreading risks among the many insured persons. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 12  It provides cover for claims from third parties such as employers’ liability and public liability  It provides compensation for loss of business activity and profits as a result of calamities such as fire.  Insurance services are offered by Insurance companies through insurance policies such as: Fire insurance, Motor Insurance, Marine Insurance and Life assurance. Transport - Transport is an aid to trade concerned with the moving of goods and people from one place to another. Transport is important because:  It helps in the delivery of raw materials and equipment to the industry.  Facilitates the movement of employees to and from work  Helps in carrying finished products to the market  It helps in the movement of traders, company executives, and agents to home and overseas markets to meet their customers.  It can be by road, rail, sea or air. Warehousing - This is an aid to trade concerned with storage of goods from the time they are produced to the time they are consumed or used. Warehousing is important because:  It is essential for the storage of raw materials awaiting to be processed.  It helps in the storage of finished goods awaiting orders from the customers.  It helps in the storage of seasonal goods such as: Jerseys, raincoats and umbrellas.  It protects goods from adverse weather conditions, theft and damage.  It allows production to take place in anticipation of demand  It helps in keeping prices of goods stable and prevent shortages  It helps in keeping imported goods before payment of customs duties.  The different types of warehouses include: Manufacturers warehouse, Public warehouse, Bonded warehouse, Wholesalers warehouse etc. Career Prospects in Commerce A career is a job or occupation that one does to earn a living. A career is usually as a result of training. After studying Commerce, one is able to fit into a number of career prospects or occupations. Below are a number of career prospects for Commerce learners:  Marketer/Sales Person – Marketing jobs involve finding customers and encouraging them to buy goods in order to satisfy their needs.  Advertising/ Promotions Officer- This involves working for media houses offering advertising space or as a Freelancer involved in creating adverts or as an advertising officer making decisions what adverts to run and which medium to use on behalf of the business.  Banker – This involves work in a commercial bank, at the central bank or with Micro finance houses.  Customs Officer- This involves working as a Customs Officer for the Revenue Authority for in the collection of duty and clearing imported and exported goods.  Entrepreneur – This involves setting up a business and running it. You can run your own business as a Retailer, a Wholesaler, a Producer or even as a Service provider.  Warehouse/Stores Officer- This deals with receiving, storage, issuing and keeping track of goods for sale, Stationery, Machinery spare parts, tools, raw materials etc.  Insurance Staff/ Insurance Broker- This involves helping various businesses and individuals to obtain insurance cover either as an insurance company employee or an independent insurance agent known as a Broker.  Transport officer- This involves working as a logistics and transport officer facilitating the movement of goods and people from place to place using various types of transport such as road, rail, air, sea and other forms of transport. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 13 PRODUCTION The Meaning of Production Production is the process by which goods and services are provided to satisfy human needs and wants. It is the creation of utility. It includes: Industry, Direct Services and Commerce. Human Needs and Wants Human needs are the basic things that we require in order to survive. They include food, clothes and shelter. Human wants are things that we require to improve our quality of life and not necessarily for survival. Wants include: cars, refrigerators, furniture, television sets, etc. Goods and Services Goods - are tangible or physical things we need to satisfy our needs and wants. Goods include things such as food staffs, houses (shelter), furniture, cars, computers, cell phones etc. Services - are intangible utilities of benefit to the public, such as entertainment, medical care, education, security, commercial services etc. Branches of Production Production is divided into three branches namely Industry, Commerce and Direct services PRODUCTION INDUSTRY COMMERCE DIRECT SERVICES Trade Aids to Trade Primary Seconda Medication ry Education Legal aid Advertising Security Banking Hair Home Foreign dressing Comm. Insurance Recreation Transport Warehousi Exhau Non- Manuf Const ng stive Exhau acturi ructio stive ng n Ret. Wh. Exp Imp. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 14 Industry This is a branch of production concerned with the actual making of goods by extracting raw materials from nature (primary industries) and then processing them into finished goods (secondary industries) which people are able to use in satisfying their needs and wants. Primary and Secondary stages of Production make up the industry branch of production. The Primary industry is also sub divided into: Exhaustive (Non -Renewable) and Non-Exhaustive (Renewable) Extractive Primary Industries. Exhaustive Extractive Primary industries are those engaged in non-renewable resources e.g. Mining and Quarries while Non-Exhaustive Extractive industries are involved in the extraction of renewable resources e.g. Farming and Fishing. Commerce Commerce is a branch of production involving the distribution and actual exchange of goods and services and also the commercial services that play a role in the distribution of goods and services to the consumers through retailers, wholesalers, exporters and importers. Commerce therefore, makes the second branch of production. Commerce completes the process of production by delivering goods to the consumers at the right time, right place, in right conditions and at the right price. Direct Services These are personal and public services provided for the direct benefit of individual citizens. Examples include: Education, health care, legal advice, entertainment, security services etc. These contribute to the satisfaction of human needs and wants by providing a variety of public and personal services, increasing the efficiency of productivity of workers engaged in industry and commerce, e.g. sick workers get medication and get back to work. How the three Branches of Production are interlinked  All branches contribute to production either indirectly or directly.  Although they are interdependent in their roles, they all bring about the provision of goods and services needed to satisfying human needs and wants  For example, industry produces goods and services.  Commerce distributes the produce of Industry and also helps Industry to acquire the machinery and raw materials, necessary for production to take place.  Direct Services also play an important role in the process. For example, the police are needed to maintain law and order, lawyers to uphold justice, nurses and doctors to provide medical facilities needed by producers and manufacturers to keep the workforce healthy. Methods of Production There are two methods of production namely, direct production and indirect production. Direct Production This is the production of goods for one’s own use. For example, a farmer who grows only enough crops or keeps enough livestock for his family’s need is involved in direct production. If people were to produce all that they needed by themselves, there would be little or no need for trade. Direct production also entails that each person has to be a master or jack of all trades i.e. build own house, tame a flock of goats, hunt, fish, farm, make clay pots, etc. to meet one’s daily needs. Because of these features, direct production is a primitive and inefficient method of production. Indirect production Indirect production is the production of goods for sale. It is the most common type of production in modern society, where few people satisfy their needs directly. Instead people co-operate with others to indirectly produce to satisfy the needs or wants of everyone. Indirect production depends on trade. People usually engage in only one or two particular occupation/s, which they are best at and sell their products to earn money. With this money NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 15 they can then buy the other goods/services they want but which they do not produce. For example, a farmer who specialises in food production needs to sell some of his food to get money to buy clothes, salt, sugar, tools etc., while a manufacturer of clothes needs to sell his clothes to get money to buy food, machinery, etc. Factors of Production Factors of production are things needed for production to take place. They include land, labour, capital and enterprise. Land  The term land refers to all resources provided by nature.  It includes land for farming and building, mines, oceans, rivers, lakes, etc.  A person who provides land is referred to as a landlord.  The benefit or reward to land is Rent or Rates. Labour  This is the human effort that is applied in production.  It may be Manual (unskilled) or professional (Skilled).  The providers of labour are labourers or workers.  The benefit or reward of labour is salary or wage. Capital  This includes money and assets used in the production of goods and services.  Capital is provided by capitalists or investors.  The reward for providing capital is interest or dividends. Enterprise  This is the skill to organise, direct and control other factors of production in order to produce goods and services.  The person who takes the effort and initiative to organise the other factors of production is known as an entrepreneur.  The reward for providing enterprise is profit if the enterprise is successful, or a loss if not successful. Types of Goods A good is a physical object which can be purchased and consumed or used to satisfy human needs or be used to produce other goods. Classification of goods  Original goods- these are goods manufactured by the brand owner or the business that is legally the owner of the brand name or the business that has the right to produce goods under a specific brand name.  Counterfeit goods – these are goods illegally produced using an existing brand name as though they have been produced by the brand owner. Counterfeit goods are imitations of the original goods by illegal manufacturers who want to take advantage of popular brand names and sell to unsuspecting customers.  Substandard Goods - these are goods that fail to perform to the expected standard. Substandard goods may easily break down or simply fail to meet the customer’s needs. E.g. a pair of shoes that get tone within one month of wearing. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 16  Quality Goods – quality goods are goods that meet the customer’s needs or expectations. Such goods give the customer the desired value for their money. They are usually produced under stringent quality control by reputable manufacturers and seldom disappoint customers. Such goods may be durable, stronger, high performing etc. NB: All goods may be classified as either:  Consumer Goods – Also known as Consumption are goods made for consumer use or consumption. These are further classified into Durable consumers (e.g. House Furniture and cooking stove) and non-durable consumer goods (e.g. a bar chocolate); or  Industrial goods – Also known as Capital Goods or Producer Goods are goods used in the production of other goods. They are goods which allow business to produce goods. These include industrial consumables like raw materials, fuel or grease for machines. Production and the Chain of Distribution The Chain of distribution refers to the various routes that goods may take to reach the final consumer once they have been produced. Below is a diagram on the different routes available for the producers of goods and services. Chains of Distribution PRODUCE PRODUCER PRODUCER PRODUCER PRODUCE R R MARKETING BOARDS/MIDDLEME WHOLESALE N R WHOLESALE WHOLESALE R R RETAILER RETAILE R RETAILER CONSUMER CONSUMER CONSUME CONSUME CONSUMER ROUTE 1 ROUTE 2 ROUTE R 3 ROUTE R 4 ROUTE 5 Production and Commerce versus Environment Effects of Production on the Environment  Soil acidity and infertility which leads poor crop production  Littering which brings about diseases such as cholera, typhoid etc.  Unplanned settlement which leads to slums and poor sanitation  Degradation of land surfaces causing soil erosion and damages to roads  Pollution of air and water which leads to various airborne and Water borne diseases.  Occupational health hazards (radiation) which results into various illnesses such as Cancer.  Displacement of animals, birds, people and other species and even extinction of some species  Climate change and global warming which leads to poor weather patterns.  Deforestation which leads to desert conditions. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 17 Possible Solutions to the Effects of Commerce on the Environment  Government policy – e.g. policies guiding the location of industries and what can and cannot be produced.  Civic education- Through community sensitizations such as the formation of CCPC and Environmental Protection Clubs in Schools.  Provision of public utilities- Government may take a leading role in the provision of essential services through parastatals or Public Corporations to ensure both the protection of people and the environment.  Provision of dust bins- Putting bins along streets, markets, shopping malls etc. to reduce littering.  Provision of posters in the industrial area- To warn or caution members of the general public e.g. posters warning people not to get near to a factory producing toxic chemicals.  Introduction of Prohibitive Taxes -Using taxes to discourage production or consumption of certain goods that are harmful to health, e.g. high taxes on tobacco products and Carbon Emission tax on cars.  Legal redress – people can take court actions against industries and organisations whose operations create an environmental hazard.  Using regulatory bodies - Use of regulatory bodies such as ZEMA (Zambia Environment Management Agency) and ERB (Energy Regulations Board) and other statutory bodies that can help monitor the practices of industries and businesses in general.  Mass movements and demonstrations – people can peacefully demonstrate against industries whose operations has a negative effect on the environment. This can lead to concern businesses taking corrective measures or attract government intervention. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 18 CONTRACTS A contract is a legal agreement that creates an obligation binding upon the parties to the agreement. It is an agreement between two or more parties that is intended to be legally binding. Importance of Contracts Contracts are very important for businesses because:  They act as a reminder to parties on what is expected of them to do as stipulated in the contract.  Contracts act as evidence in courts of law in case of breaches and legal litigation  They help is specifying the terms and specific actions to be performed by the parties  Contracts reduce the risk of non-compliance as parties would of aware of the consequences of non-performance.  Contracts give title of ownership to parties e.g. contract of sale.  Contracts act as a permanent of record of transaction or agreed terms.  Contracts may be used in accessing funds or borrowing e.g. a title deed. Parties to a Valid Contract The parties to a valid contract are the people or entities that are bound by the terms of a contract. A valid contract has two parties. These are:  The Offeror - the person who first expresses the intention to another person to enter into a contract. The one who makes an offer or shows willingness to be bound by the terms of a contract if the other person accepts.  The Offeree – this is the person or party to whom the offer is made and has to accept this offer for the contract to be in effect. Elements of a Valid Contract For a contract to be valid or legally binding, the following elements must exist:  An Offer – an offer is simply a proposal made by one person (the Offeror) to another (Offeree) which has to be accepted. It is an expression of intention and willingness to be bound by the terms contained in the contract once accepted. An offer can be made to an individual, a group or even to the whole world.  Acceptance – this is the expression of agreement to the proposal from the Offeror by the Offeree. It is an expression of intention to fulfil the agreement by the Offeree. Once the offer is accepted by the offeree, the contract is formed and the offer comes to an end. Acceptance may be orally, in writing, or by the implication of conduct (performance).  Consideration – this is something of value that each of the parties to a contract gives to the other. It is the sacrifice that each party gives in return for what they receive from the other party. This has to be sufficient but need not be adequate.  Capacity to contract – All parties to a contract must have the ability to be contracted. All contracts entered into by people or entities deemed not to have capacity are null and void. The following have no capacity (do not qualify to be contracted): o A minor (a person who has not yet reached his/ her 18th birthday. o An insane person (a person with mental disorder). o A person that is intoxicated or acting under the influence of a drug o An un registered business  Certainty – the terms of the contract must be clear and specific. It must be clear as to what the parties have agreed on. All the essential terms to be settled between the parties must be settled. Misrepresentation, mistake, duress and undue influence may invalidate the contract. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 19  Consent – the parties to a contract must freely agree to be bound by the terms of the contract and not be forced to enter into the contract.  Legality – the contract must be lawful. A contract is void if it is based on an illegal purpose or contrary to public policy. E.g. a contract to kill someone.  Possibility of performance – the terms of the contract should be practicable or attainable and realistic. E.g. a contract to bring back to life someone who died many years ago is unrealistic, unattainable with no possibility of performance.  It is common to confuse an offer with an invitation to treat. The two items are distinguished as follows:  An invitation to treat is merely a supply of information to influence or persuade people to make offers. An offer on the other hand is made when the one making it is willing to enter into a legally binding contract when accepted.  An invitation to treat is a request or a call for offers. E.g. An invitation for tenders, general advertisements, Auction, display of goods on a Shop Window (without price tags), Auctioneer request for bids, a company prospectus etc.  An invitation to treat does not solicit for acceptance but for people to make offers while an offer solicits for acceptance.  Price tags on goods in a Supermarket are an offer to members of the general public unless there is a provision for price negotiations. Price tags on goods with room for negotiation would amount to an invitation to treat. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 20 HOME TRADE Home Trade, also known as Domestic Trade is the buying and selling of goods and services within a country. It consists of Wholesale trade and Retail trade. It involves Wholesale trade and Retail trade. Retail Trade Retail Trade involves the buying of goods in large quantities and selling them in small quantities to the final users or consumers. Traders involved in retail trade are known as Retailers. Functions of a Retailer  Breaking the bulk- retailers buy in large quantities but resell in smaller or affordable quantities to consumers.  A retailer provides a variety of goods to his or her customers to meet their various needs.  Provides goods to customers at convenient times.  Acts as a link or middlemen between the consumer and the manufacturer.  They help in advertising goods through their attractive displays or merchandising skills.  Provides transport or delivery services to customers who buy bulky and expensive goods.  Locates the retail shop near the customers so as to satisfy their local needs.  May offer personal attention (advice) to customers on the goods they intend to buy.  They assemble some goods which they buy as components but sell them as a unit e.g. Bicycles, display units, Fancy beds etc.  The retailer may offer goods on credit to trusted customers.  Provides pre-sales and after-sales services to customers.  Retailers such as supermarkets and Hypermarkets offer self-service where customers are allowed to walk around the shop and free to select the goods that they want. What is Pre-sales service? These are services provided to customers before they buy a product. This Allows customers to check the goods, especially the electrical appliances, so as to prove whether they are in a workable condition before being sold to the customers. What is After-sales service? This is a service provided to customers after goods have been purchased. It includes the maintenance and repair service offered to customers after the transaction has already taken place. Goods that develop faults are taken back to the retailers for repair, for free or at a cost, depending on whether the fault is within the guarantee period or not. Factors to consider when establishing a Retail Outlet Factors considered when one wants to start a retail business are:  Experience or know how – One needs some basic ideas and experience of how a business is run and some financial management skills.  Capital or Money – One needs to know the minimum capital outflow needed to start the business. the size of the capital will also determine the size of the business  The range of goods to sell – One needs to decide on whether they will deal in a variety of goods or specialize.  Method of sales – One needs to decide on the method to use in selling products. The two common methods being; Across the counter and Self Service. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 21  Level and type of competition- one needs to do an assessment of the level and nature of competition that the retail shop is going to face as this has a direct effect on the shop’s survival.  Legal requirements- one needs to ensure that the retail shop complies with all legal requirements. This include laws regarding acquisition of trading certificates, clearance from the council and obtaining of a Tax clearance certificate and TPIN from the Zambia Revenue Authority (ZRA).  Security – the rate of crime in the area preferred is an important factor to consider before opening the shop. Locating a shop in a High crime area would mean spending on additional security installations.  Types of customers - one needs to consider or analyse the needs and buying patterns of potential customers, including their economic status.  Location or site –one needs to consider the location of the shop in relation to expected profits or turnover.  Profitability – One has to estimate the profits that the business is likely to make over a given period of time. This is necessary in ascertaining the viability of the business. Types of Retailers There are basically two types of retailers classified on the basis of size. These are; Small- Scale Retailers and Large-Scale Retailers. Small Scale Retailers These are retailers who sell a limited range of goods/services, invest a smaller amount of capital in the business and whose business premises are relatively smaller. There are many small-scale retailers, some trading formally while others are involved in informal trade usually without licenses. Characteristics of Small Scale Retailers Small scale retailers share the following characteristics:  Small capital – the amount of capital needed to start a small-scale retail business is usually small.  Unlimited liability- small scale retail businesses have no legal protection over the owner’s property outside the business in an event that he/she fails to pay debts.  Flexible operating hours- their operating hours are usually flexible, giving convenience to customers  Over the counter selling- most small-scale retailers that sell from fixed premises offer counter services and are not in a position to offer self-service due to limited space and resources.  Deal in Fast Moving Consumer Goods (FMCGs) - Most small-scale retailers deal in FMCGs. These consist of low value frequently bought consumer goods such as groceries like sugar, salt, soap, tea leaves, cooking oil, sweets etc.  Location- they are mostly located in residential areas for easy reach while others are located in markets and along streets.  Narrow range of goods- due to small capital, small scale retailers deal in a narrow range of goods.  Privately owned- most of the small-scale retail shops are privately owned by private individuals most of whom have very little business knowledge.  Fewer registration requirements – usually, small scale retail businesses do not require a lot of registration procedures. A Council Trading License plus a Tax Registration Certificate from ZRA could be enough. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 22 Advantages of Small Scale Retailers Below are some of the advantages enjoyed by small scale retailers  Independent management – the owners enjoy independence in terms of decision making and control over the business as opposed to large retail outlets owned and run by many people that have to first consult and agree before making any decisions.  Easy to set up- they are easy to set up in terms of the amount of capital required, the number of workers needed, the legal procedures to be followed and the infrastructure required.  Personal contact – the owners enjoy high personal contact with both the customers and the workers. This is good for quick feedback and for effective business management.  Low cost location- most small-scale retail outlets are located in residential areas where rates and rent are low.  Convenient location – most small-scale retail shops are located near the customers’ and owner’s home making them more accessible.  Flexible operating hours – Small scale retail shops have flexible opening and closing time enabling them to take advantage of the fluctuations in demand levels.  Easy to sell goods – small scale retailers deal in Fast Moving Consumer Goods (FMCGs) which are frequently bought by customers are easy to sell. Disadvantages of Small Scale Retailers Small scale retailers have the following disadvantages:  Low competitive power – they are unable to buy in bulk at factory prices straight from manufacturers. This makes them less competitive.  Limited capital and slow expansion – because of the small amount of capital injected into the business, expansion of the business is usually slow and difficult.  High prices – because of their inability to buy straight from manufacturers at discounted factory prices, their prices are usually high,  Low borrowing capacity – in most cases, banks and other lending institutions are unwilling to lend money to small scale retailers due to high risk of defaulting.  Unlimited liability- small scale retailers’ assets outside the business may be taken over by lenders (creditors) if the business is unable to pay its debts (insolvent).  Location- small scale retailers may not afford sites for location along main streets or in town centres where business is good. Small scale retailers can be divided into two groups namely, small retailers without shops and small retailers with fixed shops. Small Retailers without Shops Mobile shops A mobile shop is a van that has been converted into a shop and moves around people’s homes, streets, and work places. They usually sell perishables like milk, fresh vegetables etc. and have the advantage of reaching isolated places. They offer door to door delivery services and their operation costs are low. Hawkers Hawkers are small scale traders who sell goods by moving from one place to another carrying their merchandise in boxes and baskets. Hawkers obtain their licences from local authorities i.e. local councils. Itinerant traders Itinerant traders are small scale traders that carry a handful of merchandise in their hands and move from place to place to sell. Some maybe agents of large organisations. They usually have no trading licenses and may use large boards on which they stick their merchandise NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 23 Roadside Traders Roadside traders are small scale retailers who usually sit under trees along the main roads selling their merchandise. They operate without licences from local authorities. Street Markets or Vendors Street vendors are small scale retailers who sell their merchandise along busy streets. Their merchandise range from foodstuff to household goods. They operate without licences from local authorities. Automatic Vending Machine These are automated retail machines used for selling items such as ice cream, canned drinks etc. They are normally placed in convenient places, e.g. offices, airports, bus stations, hospitals, etc. They have the advantage of cost saving because they need no attendants. All that a customer needs is a coin or bank note of a particular denomination which they slot in for the machine to produce the needed commodity. Small Retailers with Shops Tied Shops These are shops that sell products made by only one manufacturer. Filling stations are a typical example of tied shops Caltex, B.P. They may provide fast foods or mini marts for the convenience of motorists. Discount Shops These are retail outlets which work on the principle of low mark up, but large turnover. They specialise in durable items that are branded such as furniture and electrical appliances. They are located in the outskirts where overheads are low Franchising This is an arrangement that allows a retailer to trade in another company’s name They sometimes look like multiple stores with interior and exterior decorations being the same. The retailer who operates a retail shop in another company’s name is called a franchisee. The mother company allowing its name to be used is called the franchiser. The amount paid for using another company’s name is called royalty Large Scale Retailers These are retailers that operate on a large scale. Features of Large Scale Retailers  Large capital- the have large capital, giving them room for expansion in their business and enables them to buy their goods in large quantities straight from the manufacturers. They are also able to purchase machines and hire expert services in their businesses.  Wide range of goods – most large-scale retailers offer a wide range of goods to their customers.  Self Service – most large-scale retailers offer self-service to the customers i.e. display goods on shelves and allow the customers to freely select the goods they want all by themselves.  Pre- sale and after sale services – most large -scale retailers provide presale services such as: Consumer Education, Product assembling, product testing, show rooms, demonstrations, shopping baskets and trolleys etc. After sale services on the other hand NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 24 include: Carrier bags, delivery services, guarantees, free repair services, free installation service etc.  Central location- most large-scale retail shops (except a few) are located in the central business town areas for easy access by customers.  Limited liability – most large-scale retailers are registered as companies which gives them separate legal existence and limited liability.  Bulk buying- most large-scale retailers buy in large quantities straight from the manufacturers. Advantages of Large Scale Retailing Large scale retailers enjoy the following advantages:  Ability to employ experts – large scale retailers are able to employ experts or specialists and likely to grow the business.  Use technology – large scale retailers have the capacity to acquire and use new technologies in their businesses such as: online systems, barcode readers, computerized checkout points, security cameras etc.  High buying power- large scale retailers are able to buy large quantities of goods straight from the manufacturers at factory prices.  Ability to borrow from banks- Banks and other lending institutions are willing to lend money to large scale retailers due to their good financial position and capacity to pay back.  Economies of scale- economies of scale are all the advantages that a business may enjoy due to operating on a large scale which reduces the average costs. E.g. discounts received for buying in bulk, negotiated or reduced interest rates charged to large businesses due to low risk factor, reduction in advertising rates due to size of adverts.  Accessibility- most large-scale retail outlets are located in town centres which makes them highly accessible to customers. Disadvantages of Large Scale Retailers Large scale retailers have the following disadvantages:  Pilferage and Shoplifting – large scale retailers suffer from increased cases of pilferage and shoplifting.  Low personal service- the use of Self Service by most large-scale retailers means that customers cannot deal directly with the owners of the business or even the manager.  High location cost- because of their location which is mainly in town centres, large scale retailers are faced with high cost of rentals and rates.  High competition – large scale retailers face increased competition from among themselves and from Wholesalers that also sell directly to consumers. This increases their cost of doing business.  Fixed operating hours- most large-scale retailers have fixed operating hours which reduces the retailers’ ability to take advantage of the changes in the demand levels.  High staffing expenses – most large-scale retailer employ experts who usually demand high pay. Even if there are fewer employees working on the sales floor, there are many more employees needed to carryout routine work with little or no contact with the customers. Types of Large Scale Retailers Supermarket Supermarkets are large scale retail outlets with large sales space located in town centres and mostly operate on self-service. They practice loss leaders pricing where selected goods are sold at a very cheap price to attract customers. They mainly deal in fast moving consumer goods. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 25 Hypermarkets These are very large retail outlets located in the outskirts of towns with large selling space and operate on self-service. They deal in a wide range of goods and provide additional amenities such as: restaurants, swimming pools, Carparks, entertainment etc. Departmental Stores These are retail outlets with many shops (departments) under one roof and are located in town centres or busy shopping areas. Each store specializes in one type or line of goods e.g. clothing, hardware, furniture, auto spares, cosmetics, butchery etc. Each department is headed by a departmental manager who reports to the general manager. Mail Order Shops Mail Order Shops are retail businesses that sell goods through the Post Office or the internet. The retailer may have a shop where customers can visit and do their shopping and also a warehouse specifically meant for storage of mail order merchandise awaiting orders from customers. This form of retail business is common in countries with an effective postal system. Multiple Shops/Chain Stores These are large scale retail outlets run as a group of shops with the same name, appearance and prices owned by the same company. These come in two types according to the range of goods that they deal in; Speciality Chain stores/Multiple shops and Variety Chain Stores/ Multiple shops. Co-Operative Retail Outlets These are large scale retail outlets formed and run by a group of customers on the cooperative principles of ownership, operation, and distribution of profits. The shops are owned and financed by the members who are also the main customers. The cooperative sells goods to both members and non-members. Membership is open to anyone willing to buy shares. All members have limited liability. There is democratic control and profits are distributed to members in accordance with the purchases they make as determined by the number and value of dividend stamps issued at every purchase. Wholesale Trade Wholesale trade is the buying of goods in large quantities from producers and selling them in relatively smaller quantities to retailers. A person engaged in wholesale trade is known as a wholesaler. A wholesaler is a connecting link between the manufacturer and the retailer. Functions of a Wholesaler  Warehousing – The wholesaler stores goods and keeps them safe until the retailer requires them. This role relieves the manufacturer of the cost of storage and enables them to specialise only on production. At the same time, retailers are provided with a ready supply of goods whenever they want it.  Risk bearing – By storing goods in large quantities, the wholesalers take a lot of risks. Sometimes the goods kept in the warehouse may not be wanted by customers, or they may become obsolete or out of fashion  Keeping prices stable – Wholesalers keep prices steady by holding goods in store in order to prevent either shortage or excess developing in the market. They always keep enough supplies on hand to be able to meet any rising demand for goods and avoid prices rising. A rise in price is usually caused by shortage and having surplus causes fall in price. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 26  Breaking the bulk – Wholesalers buy goods from the producers in large quantities and sell them to retailer’s in relatively smaller quantities.  Providing a variety – Wholesalers provide the retailers with a wide variety of goods from which to choose. They usually order goods from various producers from all over the world and stock them under one roof. The retailer therefore finds almost all they need in one store.  Information – In the chain of distribution, the wholesaler is located in between the producer and the retailers, a position that enables them to provide the vital bridge linking the producers to the retailers. Information flows up and down the chain through the wholesaler.  Financier – Wholesalers usually pay cash for the goods they buy from the manufacturer instead of asking for credit. This keeps the manufacturer sup0plied with sufficient working capital. At the same time, they give credit to retailers thereby increasing their working capital.  Transport – Most wholesalers operate their own fleet of trucks; they send their truck to collect the goods from the factories. At times they also deliver the goods to the retailers’ premises, in their own trucks.  Preparing goods for sale – Wholesalers prepare goods for sale by branding, packaging, labelling or bottling them. The manufacturers normally sell goods such as wines and tea in large bulk without packaging. It is the wholesaler who bottle the wines and packaging the tea in tea bags.  Marketing – Wholesalers buy goods from manufacturers as soon as they are produced. They then advertise and market them on behalf of the manufacturer. As a result, the manufacturers would only need to worry about production. Types of Wholesalers Cash and Carry Wholesalers These sell their goods strictly on cash and do not provide transport or delivery. Features of cash and carry wholesalers  They sell mainly groceries  They do not offer credit facilities  They do not offer delivery or transport facilities  They buy in large quantities and sell in relatively small quantities  They may sell to retailers as well as customers  They tend to be cheaper as they do not offer credit and transport  Their premises are usually large and sparsely decorated  They usually serve local market since they do not offer transport General Wholesaler  These are wholesalers who sell a wide range of goods and are usually very large with branches in many regions. Their main features are as follows  They are run by large companies who have huge capital  They are usually very large and may operate on a regional or national basis  They often send their salesmen around to obtain orders from retailers  They normally offer regular customers short term credit facilities Specialist Wholesalers  These are wholesalers who specialise on a limited range of goods  but who provide a wide variety of goods within that range.  For example, Hardware shops that sell only Building related materials. However, they provide many different variety of building materials and equipment. Wholesaler fruit and vegetable stores and Book Sellers like Book World and others are examples of specialist wholesalers. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 27 Co-Operative Wholesale Societies This is the wholesale business formed by the co-operative retail societies The Main Features of Co-Operative Wholesale Society  membership is open to all co-operative retail society wishing to become members  they are controlled by Board of Director elected from representatives of the co-operative retail society  they break the bulk for the members  they supply members with the variety of goods  to reduce dependence on other wholesalers, they carry out manufacturing goods, farming and obtaining own labels  capital is provided by co-operative retail society in direct proportion to the number of members they have  profits are shared as dividends amongst members according to the purchases made  they are located on the outskirts of town for the following reasons; land is cheap and readily available, the members have to provide their own transport to move the goods. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 28 DOCUMENTS USED IN HOME TRADE Business transactions between buyers and sellers are normally required in written form to allow both sellers and buyers to have records not only for the sake of evidence but also to enable them keep track of their transactions. Before a transaction is completed, a number of documents may be exchanged between the Seller and the Buyer. Below is a sequence of how these documents may be exchanged. For each, the party that prepares the document is stated. (1) Letter (2) (3) Purchase (4) Advice of Inquiry Quotation Order Note (Buyer) (Seller) (Buyer) (Seller) (5) Delivery (10) Statement Note / of Account Consignment (Seller) Note (Seller) (6) Goods (9) Receipt (8) Debit Note/ (7) Invoice Received Note (Seller) Credit Note (GRN) (Seller) (Buyer) (Seller) Business Documents used in Home trade Letter of Inquiry This is a letter from the buyer to the seller finding out on the availability of goods, their sizes, prices, delivery dates (period) and other terms of sale. LETTER OF INQUIRY Roma Girls Secondary School P.O. Box 30437, LUSAKA 16th January, 2017 Zam Paper Limited P.O Box 50075 LUSAKA Dear Sir/Madam Kindly send us information on the availability, units, prices and other Terms of sale and delivery conditions for the following stationery: 1. Reams of plain papers 2. A4 hard cover books (192 pages) 3. Board rubbers 4. Class registers 5. Manila paper Your reply must be delivered at Roma Girls Secondary School before 22 nd January, 2017. For any clarification or additional information do Not hesitate to contact the undersigned on 0211292295. Yours faithfully, Edshils E. SHILUWE PROCUREMENT OFFICER NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 29 Quotation This is a seller’s reply to the letter of inquiry. It contains the necessary details and description of the goods asked for in the letter of inquiry. To enable the Purchasing Officer make a good choice, a minimum of three suppliers would be asked to provide quotations. QUOTATION NO. 112 Zam Paper Limited P.O. Box 50075 LUSAKA. 20th January 2017 Roma Girls Secondary School P.O. Box 30437 LUSAKA In reply to your letter of inquiry dated 16th January 2017 REF. DESCRIPTION UNIT PRICE (K) R002 Reams of plain papers 37.00 B005 A4 hard cover books (192 pages) 17.00 D001 Board rubbers 15.00 C003 Chalk 18.00 MP01 Manila paper 4.00 ST05 Staples 15.00 Delivery : 2 days on receipt of order Trade discount: 5% Cash Discount: 10% 1 Wk, 5% 2Wks, 2% 3 Wks and Net after 3 Wks. Rfisonga R. FISONGA SALES & MARKETING MANAGER Other documents that may be used as quotations include:  The Catalogue – This a colourful booklet that has detailed information on goods held in stock in form of pictures, brief description and prices.  Price List- A statement showing a list of goods on offer for sale with their prices.  Price Current- Similar to a Price List but is used for quoting goods or services whose prices fluctuate. The prices are subject to change within a day or week. Examples of commodities were the price current may be used include: Currency exchange rates and Share prices.  Proforma Invoice – mainly used when the prospective buyer has included the quantities. It bears a list of items, their quantities, unit prices and their totals showing exactly how an invoice would appear should the buyer decides to buy the goods.  Estimate- a special kind of quotation sent in reply to a letter of inquiry for a certain work or task to be done according to specific instructions e.g. building a classroom block or a painting some offices. It shows the materials needed, the time the task would take to be completed and the labour cost for the work.  Tender – a Tender is a document sent by the seller to the buyer in response to the buyer’s request for sellers to compete to supply goods and services for a particular period of time. The Purchase Order Also known as Order or Order Note is an instruction from the buyer to the seller particular goods. An Order is sent by the customer when he/she is satisfied with the information received from the supplier. The order contains: description of the goods required, the quantity ordered, the price, the delivery date and terms of sale. The order is the only document with the words “please supply the following”. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 30 ORDER Roma Girls Secondary School P.O. Box 30437 LUSAKA NO. 303 27th January 2017 Zam Paper Limited P.O. Box 50075 LUSAKA Please supply the following items Quantity Description REF Unit Price Total 20 reams Plain Papers R002 37.00 740.00 40 A4 Hard cover books (192 pages) B005 17.00 680.00 10 Board Rubbers D001 15.00 150.00 30 boxes White Chalk C003 18.00 540.00 100 Manila MP01 4.00 400.00 10 boxes Staples ST05 15.00 150.00 TOTAL 2 660.00 Edshils E. SHILUWE PROCUREMENT OFFICER Advice Note The Advice Note is sent by the seller to the buyer to inform the buyer that the goods will be dispatched or have been dispatched. It also states the mode of transport to be used and when to expect the goods. The document alerts the buyer in advance of the goods so that he/she can prepare his/her warehouse to receive them. Delivery Note/Consignment Note  A Delivery Note is document sent to the buyer through the driver of the vehicle delivering the goods. The buyer checks the delivery note against the purchase order when the goods are received to find out whether the goods sent are the ordered. The delivery note is only used when the seller has used his own transport to deliver the goods to the buyer’s premises.  The Consignment Note on the other hand is used when the seller has used hired transport to deliver goods to the buyer. The document is made out in triplicate (three copies) which when signed by the buyer, one copy goes to the transporter, another to the seller and the last one remains with the buyer. Goods Received Note (GRN) This is an internal document completed by the buyer’s Receiving or Purchasing department to be used as an internal control as proof that the goods have been received as per order. The copies of the GRN are shared by the Stores, Purchasing and Accounts Departments showing the goods that have been received by the organization. The document shows the quantity of goods received and the condition in which they were received. The Invoice An invoice is a bill for the goods that were ordered and delivered sent by the seller to the buyer. An invoice contains information such as: description of the goods, quantity supplied, unit and total prices, terms of sale, discounts offered and terms of payment. It is a request for payment. The buyer may check the invoice information against the Purchase Order, the Delivery Note and the GRN to ensure that they pay for what they ordered and received. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 31 INVOICE Zam Paper Limited P.O. Box 50075 LUSAKA NO. 105 30th January 2017 Roma Girls Secondary School P.O. Box 30437 LUSAKA For Order no.303 of 27th January 2017 Quantity Description REF Unit Price Total 20 reams Plain Papers R002 37.00 740.00 40 A4 Hard cover books (192 pages) B005 17.00 680.00 10 Board Rubbers D001 15.00 150.00 30 boxes White Chalk C003 18.00 540.00 100 Manila MP01 4.00 400.00 10 boxes Staples ST05 15.00 150.00 GROSS INVOICE PRICE 2 660.00 Less Trade Discount 5% 133.00 NET INVOICE PRICE 2 527.00 Cash Discount: 10% 1 Wk, 5% 2Wks, 2% 3 Wks and Net after 3 Wks JKalala J. KALALA E&OE ACCOUNTS DEPARTMENT The Invoice also has the abbreviations E&OE which stands for: Errors and Omissions Excepted. This entails that the seller is willing to correct any errors that may appear. Debit Note/ Credit Note The Debit Note (DN) is a document prepared by the seller to the buyer if he/she has been undercharged or over supplied. The Debit Note is issued to claim extra money from the buyer, it is like an additional invoice. The Credit Note on the other hand is prepared by the seller and sent to the buyer when the buyer has returned of the goods, has been overcharged. It is usually printed in red to distinguish it the invoice. The main purpose of using the credit note is to reduce the amount indicated on the invoice when the buyer is overcharged and also to recognize the return of some of the goods by the buyer. Receipt This is issued by the seller to the buyer as an acknowledgement for the payment made by the buyer. To the buyer, the receipt acts as proof of payment made to the seller. Statement of Account The statement of account is a summary of all the transactions between the buyer and the seller during a period of time e.g. one month. It is important because it shows the series of transactions i.e. purchases, returns, payments and the balance remaining at the end of the month. It shows the amount owing at the beginning and end of a given period. It is also used as a reminder or request for payment by the seller to the buyer. NOT FOR SALE Business Studies Teachers Association of Zambia – Lusaka Province  Commerce 7100 Supplementary Study Notes 32 STATEMENT OF ACCOUNT Zam Paper Limited P.O. Box 50075 LUSAKA NO. 014 31st January 2017 Roma Girls Secondary School P.O. Box 30437 LUSAKA For the month of February 2017 Date Details Debit (K) Credit (K) Balance (K) 01.02.17 Balance b/f 20 000.00 05.02.17 Cheque no. 000252 10 000.00 10 000.00 13.02.17 Invoice no. 349 15 000.00 25 000.00 20.0217 Credit Note no. 111 3 000.00 22 000.00 22.02.17 Cheque no. 000262 17 000.00 5 000.00 25.02.17 Invoice no. 372 18 500.00 23 500.00 27.02.17 Debit Note no. 0022 300.00 23 800.00 28.02.17 Cheque no. 000273 20 000.00 3 800.00 JKalala J. KALALA ACCOUNTS DEPARTMENT The last amount in the balance column is the amount outstanding or owing. The buyer can use the statement to verify all transactions notify the seller if there are any anomalies. Trade Discount and Cash Discounts  Trade discount (TD) is a reduction on the gross invoice price of goods given to the buyer by the seller for buying in bulk. It is also meant to enable the buyer make some profit if the purchased goods were for reselling. It encourages repeat purchases from buyers.  Cash discount (CD) is a reduction on the net invoice price of goods. It is given to a debtor for paying promptly for the goods bought on credit. The purpose of Cash discount is to encourage buyers (debtors) to se