CHAPTER 1
NATURE AND PURPOSE OF BUSINESS
Concept of Business
The term business is derived from the word ‘busy’. Thus business means being busy. However, business refers to any
occupation in which people regularly engaged in an activity with a view to earning profit. The activity may consist of
production or purchase of goods for sale or exchange of goods or supply of services to satisfy the needs of the other
people.
Meaning of Business
Literal meaning of business is being busy
↓
It is an economic activity
↓
Production and sales of goods and services
↓
With the motive of earning profit
↓
Satisfying human beings
Business activity is divided into two parts :
i) Economic activities
ii) Non-economic activities
Economic activities- Economic activities are those by which we can earn or livelihood. Eg. A worker in a factory, a
doctor operating in his clinic, a manager working in the office and a teacher teaching in a school, are doing so to earn
their livelihood and are, therefore, engaged in a economic activities.
Non Economic Activities- Non economic activities are those performed out of love, sympathy, sentiments, patriotism
etc. Eg. A house wife cooking food for her family or a boy helping old man cross the road is performing non-economic
activities.
Economic Activities divided into following:
i) Business:- Business refers to occupation in which people engaged in activities of purchase, production or sale of
goods and services with a view to earn profit.
ii) Profession:- Profession include those activities, which require special knowledge and skill to be applied by individual
in their occupation. Those engaged in profession are known as professional.
iii) Employment:- Employment refers to the occupation in which people work for others and get remunerated in return.
COMPARISON OF BUSINESS, PROFESSION & EMPLOYMENT
Basic Business Profession Employment
Mode of Entrepreneur’s decision
M membership of a Appointment letter and
establishment and other legal formalities professional body and service agreement
, if necessary a certificate of practice
Nature of work Provisions of goods Rendering of Performing work as per
and services to the public personalized expert service contract or
services rules of services.
Prof. Shefali Khurana +919988056377
, Qualification No minimum qualification Expertise & training Qualification & training
is necessary in a specific field is must as prescribed
by the employer
Reward or Profit earned Professional fee Salary or wages
Return
Capital Capital investment required Limited capital No capital required
investment as per size & needed for establishment
nature of business
Risk Profits are uncertain Fee is generally Fixed and regular pay ,
& irregular, risk is present regular and certain, no risk
some risk
Transfer of Transfer possible with Not possible Not possible
Interest some formalities
Code of No code of conduct Professional code of Norms of behavior
conduct is prescribed conduct is to be followed laid down by the employer
are to be followed
CHARACTERSTICS OF BUSINESS
i) An economic activity:- Business is considered to be an economy activity because it is undertaken with the object of
earning money or livelihood not because of love, affection, sympathy or any other sentimental reasons.
ii) Production or Procurement of goods & services:- Enterprise either manufactures the goods it deals in or acquires
them from producers, to be further sold to consumers or users. Goods may consist of consumable items of daily use or
capital goods. Services may include facilities offered to consumers,business firms and organizations.
iii) Sale and exchange of goods and services for the satisfaction of human needs:- Business involves transfer or
exchange of goods and services for value. For eg:- Cooking food at home for the family is not business but cooking food
and selling it to others in a restaurant is business.
iv) Dealing in goods and services on a regular basis:- Business involves dealings in goods and services on a
regular basis. One single transaction of sale or purchase, therefore, does not constitute business.
v) Profit earning:- No business can survive for long without profit. That is why, businessmen make all possible efforts
to maximize profits, by increasing the volume of sales or reducing costs.
vi) Uncertainty of return:- Lack of knowledge relating to the amount of money that the business is going to earn in a
given period. There is always a possibility of losses being incurred, despite the best efforts put into the business.
vii) Element of risk: - Uncertainty associated with an exposure to loss. It is caused by some unfavorable or undesirable
event. The risk are related with certain factor like changes in consumer taste & fashion, change in methods of
production, strike or lockout in the work place, increased competition in the market, fire, theft, accident, nature
calamities.
INDUSTRY
Industry refers to economic activities which are connected with conversion of resources into useful goods. The term
industry is used for activities in which mechanical appliances and technical skill are involved and relating to producing or
processing of goods as well as breeding and raising of animals. It is also used to mean groups of firms producing
similar or related goods. Eg. Cotton textile industry refers to all manufacturing units producing textile goods from cotton.
Industry may be divided into three broad categories namely primary, secondary and tertiary.
A) Primary Activity:- Primary activities which are concerned with the extraction and production of natural resources
and reproduction of development of living organism, plants etc. These Industries may be further sub-divided as follows:
i) Extractive Industry:- These industries extract or draw out products from natural resources. Products of these
industries are usually transformed into many other useful goods. Important extractive industries include farming,
mining, hunting & fishing operations.
Prof. Shefali Khurana +919988056377
NATURE AND PURPOSE OF BUSINESS
Concept of Business
The term business is derived from the word ‘busy’. Thus business means being busy. However, business refers to any
occupation in which people regularly engaged in an activity with a view to earning profit. The activity may consist of
production or purchase of goods for sale or exchange of goods or supply of services to satisfy the needs of the other
people.
Meaning of Business
Literal meaning of business is being busy
↓
It is an economic activity
↓
Production and sales of goods and services
↓
With the motive of earning profit
↓
Satisfying human beings
Business activity is divided into two parts :
i) Economic activities
ii) Non-economic activities
Economic activities- Economic activities are those by which we can earn or livelihood. Eg. A worker in a factory, a
doctor operating in his clinic, a manager working in the office and a teacher teaching in a school, are doing so to earn
their livelihood and are, therefore, engaged in a economic activities.
Non Economic Activities- Non economic activities are those performed out of love, sympathy, sentiments, patriotism
etc. Eg. A house wife cooking food for her family or a boy helping old man cross the road is performing non-economic
activities.
Economic Activities divided into following:
i) Business:- Business refers to occupation in which people engaged in activities of purchase, production or sale of
goods and services with a view to earn profit.
ii) Profession:- Profession include those activities, which require special knowledge and skill to be applied by individual
in their occupation. Those engaged in profession are known as professional.
iii) Employment:- Employment refers to the occupation in which people work for others and get remunerated in return.
COMPARISON OF BUSINESS, PROFESSION & EMPLOYMENT
Basic Business Profession Employment
Mode of Entrepreneur’s decision
M membership of a Appointment letter and
establishment and other legal formalities professional body and service agreement
, if necessary a certificate of practice
Nature of work Provisions of goods Rendering of Performing work as per
and services to the public personalized expert service contract or
services rules of services.
Prof. Shefali Khurana +919988056377
, Qualification No minimum qualification Expertise & training Qualification & training
is necessary in a specific field is must as prescribed
by the employer
Reward or Profit earned Professional fee Salary or wages
Return
Capital Capital investment required Limited capital No capital required
investment as per size & needed for establishment
nature of business
Risk Profits are uncertain Fee is generally Fixed and regular pay ,
& irregular, risk is present regular and certain, no risk
some risk
Transfer of Transfer possible with Not possible Not possible
Interest some formalities
Code of No code of conduct Professional code of Norms of behavior
conduct is prescribed conduct is to be followed laid down by the employer
are to be followed
CHARACTERSTICS OF BUSINESS
i) An economic activity:- Business is considered to be an economy activity because it is undertaken with the object of
earning money or livelihood not because of love, affection, sympathy or any other sentimental reasons.
ii) Production or Procurement of goods & services:- Enterprise either manufactures the goods it deals in or acquires
them from producers, to be further sold to consumers or users. Goods may consist of consumable items of daily use or
capital goods. Services may include facilities offered to consumers,business firms and organizations.
iii) Sale and exchange of goods and services for the satisfaction of human needs:- Business involves transfer or
exchange of goods and services for value. For eg:- Cooking food at home for the family is not business but cooking food
and selling it to others in a restaurant is business.
iv) Dealing in goods and services on a regular basis:- Business involves dealings in goods and services on a
regular basis. One single transaction of sale or purchase, therefore, does not constitute business.
v) Profit earning:- No business can survive for long without profit. That is why, businessmen make all possible efforts
to maximize profits, by increasing the volume of sales or reducing costs.
vi) Uncertainty of return:- Lack of knowledge relating to the amount of money that the business is going to earn in a
given period. There is always a possibility of losses being incurred, despite the best efforts put into the business.
vii) Element of risk: - Uncertainty associated with an exposure to loss. It is caused by some unfavorable or undesirable
event. The risk are related with certain factor like changes in consumer taste & fashion, change in methods of
production, strike or lockout in the work place, increased competition in the market, fire, theft, accident, nature
calamities.
INDUSTRY
Industry refers to economic activities which are connected with conversion of resources into useful goods. The term
industry is used for activities in which mechanical appliances and technical skill are involved and relating to producing or
processing of goods as well as breeding and raising of animals. It is also used to mean groups of firms producing
similar or related goods. Eg. Cotton textile industry refers to all manufacturing units producing textile goods from cotton.
Industry may be divided into three broad categories namely primary, secondary and tertiary.
A) Primary Activity:- Primary activities which are concerned with the extraction and production of natural resources
and reproduction of development of living organism, plants etc. These Industries may be further sub-divided as follows:
i) Extractive Industry:- These industries extract or draw out products from natural resources. Products of these
industries are usually transformed into many other useful goods. Important extractive industries include farming,
mining, hunting & fishing operations.
Prof. Shefali Khurana +919988056377
