Category: Commerce Notes PPT

is the leader in the field of digital education in India and we have been pursuing to push boundaries and bring quality education with ease to all sections of students in India. brings to you a detailed explanation on the topic of insurance and its various types which shall be beneficial to all students.

 

Introduction to Insurance

Insurance is one of the most important safety nets that is being used by individuals and property owners in the modern world. Insurance is basically a bond scheme that you sign with a bank or your insurance provider where the insurance provider promises to pay you a certain amount in case of an emergency or as such a situation arises when you are required to pay a large sum of money to anyone. In return for this, you have to pay a monthly premium to the banks which are charged as per your package and requirements. This way the respective banks earn collectively from all the people who have registered for the insurance scheme and in return they pay the amounts to those people who claim insurance amount when they require it.

Types of Insurance

There are various types of insurance schemes that are present in the market and available for people to get themselves insured. The three most prominent insurance schemes are:

Life Insurance- Life Insurance is the most widely used insurance scheme which is enrolled by people. In this scheme, a person ensures his own life and in case of his natural death or death by accident, the family of the insured person receives the insurance amount.

Fire Insurance- Fire Insurance is the type of insurance in which a person insures his property and in case of damage to his property in a fire accident the insurance provider provides the amount to the person to cover for damages for his property.

Marine Insurance – Marine Insurance refers to a contract of indemnity where the insurance provider covers the losses of ships, cargo, etc by which goods are transferred, acquired, or held between the points of origin and the final destination. 

Accounting or accountancy is significant to understand for anyone who owns a business or seeking a career in commerce-related fields. Accountancy is of crucial importance in commerce as it deals with measuring, processing, and analyzing financial information in a firm. It is rightly called the “language of business.” 

This crucial field has several subfields that deal with various aspects of the finances of a company.

Accountancy is an important subject for all commerce students.  Students may find a few topics from accountancy difficult to comprehend as they are new to the subject and still getting a hang of it. Students may get overwhelmed by the amount of information that they need to learn and process to excel in the subject. Therefore, brings you all the information you need to know about the accounting process. You will also read about different types of accounting processes and their workings.   

So if you are someone who is desiring to understand the basics of accounting processes or a student who wishes to understand various aspects of accountancy, then this article is for you.

‘s expert accounts professionals have gathered all the important information regarding the process of accounting and summed it up in an easy-to-understand manner for its readers.

History of Accounting

Accountancy is not a new field that has been recently developed. This subject has been used in its most basic form since ancient civilizations. Research shows that the first forms of accounting can be traced to the Mesopotamian civilization. Egyptians and Babylonians are said to be the first ones to develop auditing systems. Also, research in the earliest Roman Empire reveals that the Roman Government had access to detailed financial information.

Talking about India, it is well known that during the Mauryan Empire, Chanakya wrote a manuscript that was quite similar to a financial management book. Chanakya has also been credited to write a book named “Arthashastra” that contains detailed accounts of bookkeeping for a state.

In addition to these, one can easily find that all the earliest forms of civilization developed some form of accounting techniques to maintain records and go over their finances.

Therefore it can be safely said that the modern professional accounting that we see today is a product of the evolution of centuries-old traditions, needs, and thought about managing finances.

 

What is the Accounting Process?

Accounting is a process that helps in recording the financial transactions which are necessary for the business. This process includes summarizing, analyzing and reporting the transactions to give an overview to the agencies, regulators and tax collection entities. The financial statements that are used in accounting are in a concise summary format. Financial transactions which occurred over an accounting period summarizes the company’s operations, the financial position and also the cash flows.

How Accounting Works?

Accounting is one of the most prior functions for almost any kind of business which may be handled by a bookkeeper or by an accountant at a small firm, or even by a sizable finance department with a dozen of employees at larger companies. The reports that are generated by various streams of accounting like cost accounting and managerial accounting are invaluable in helping the management to make an informed business decision. 

Types of Accounting

Financial Accounting

This accounting refers to the processes that are used to estimate the interim and annual financial statements. These results in all the financial transactions which occur during the accounting period. They are summarized into a balance sheet, an income statement, and a cash flow statement.

Managerial Accounting 

Managerial Accounting uses the same data as financial accounting. In managerial accounting, an accountant generally generates monthly and also the quarterly reports that a business’s management team can implement the same to devise decisions about how the business should operate 

Cost Accounting

Cost accounting helps the business to make decisions about costing. More importantly, cost accounting considers all of the costs related to producing a product. 

Accounting Process Steps

The accounting is processed into three separate types of transactions which were used to record the business transactions. The information is then recorded into financial statements. The transactions are:

1. The First Step: to ensure that the entries are reversed from the previous period.

2. The Second Step: comprises the steps which are needed to record the individual business transactions in the accounting records.

3. The Third Step: is the period-end processing that is required to close the books and produce the financial statements.

First Step

Is to verify that all the transactions are designated as reversing entries in the preceding periods which have actually been reversed. Doing this will ensure that the transactions are not recorded twice in the same period. These transactions are generally tagged as being the reversing entries in the accounting software.

Second Step

The second step consists of further four steps:

1. Identifying the transaction. 

2. Preparing the document. 

3. Identifying the accounts.

4. Recording the transaction

The above-mentioned four steps are part of an accounting process that is used to record the individual business transactions in the accounting records.

Third Step

In this last step, the final recording is done:

1. Prepare Trial Balance – The trial balance lists the balance left in all the accounts. The total of all the debit in the trial balance equals the total of all the credit, while in contrast to this, there is an error in the entry of the original transactions which must be researched and corrected.

2. Adjust the Trial Balance – This may be required to adjust the trial balance, correct the errors or create the allowances.

3. Prepare an Adjusted Trial Balance – This is an original trial balance, plus or minus and other such adjustments are to be subsequently made.

4. Prepare Financial Statements – The financial statements are then adjusted from the trial balance. The asset, liability, and shareholders’ equity items are recorded in the balance sheet. 

5. Close the Period – For closing the period, the shifting of the balances is done in the revenue and expense accounts into the retained earning account.

In essence, forecasting is a method of examining past and current market movements and patterns in order to gain some insight or hints about future trends and business movements. Forecasting is looking into the future for us to prepare for it accordingly. 

Forecasting is not, however, a haywire operation. It is a systematic methodology with well-thought-out methods and procedures that are scientific. With the assistance of both quantitative and qualitative methods, it requires a detailed and proper study of data and information.

Steps in Forecasting

Identifying and Understanding the Structure- Factors that may shape the future of an organization are almost infinite. It is neither feasible nor desirable to define all these considerations. The executives must also define the variables on which to concentrate in order to make an effective forecast. In order to define the strategic factors of the organization, internal and external variables must also be examined.

Forecasting the Future

The next step now is to make a reliable and scientific prediction after the foundation is laid. This includes both research instruments and methods and professional judgment and observations as well. The forecast is not a foolproof strategy, just a potential guidance map.

Analysis of Deviations 

No prediction can be entirely exact. It is important to evaluate and study the variations or deviations from the forecasts. In the future, this would help to build more detailed predictions.

Adapting the Forecasts Procedure 

The skills and professional judgment required in forecasting are acquired through experience and practice. With every cycle, the forecast procedure is fine-tuned. And we can learn and continue to build on the forecasting procedures from our errors and weaknesses.

Advantages of Forecasting 

• Helps in Scheduling: One of the greatest benefits of forecasting is that it helps the manager to prepare for the organization’s future. Currently, planning and forecasting go hand in hand. We will not prepare for it without an understanding of what the future holds for the business. Forecasting, therefore, plays a very significant role in planning.

• Changes to the Climate: Prognostics should be able to point out the potential environmental changes when performed correctly. This implies that it will allow the organization to benefit from such environmental changes. It can develop and grow its business if the changes are beneficial to the company. And it may intend and prepare to defend itself in circumstances that are adverse.

• Weak Spots Detection: Another benefit of forecasting is that it can help the manager find any weak points that the company may have or overlooked areas. When attention has been drawn to these areas, successful controls and preparation strategies to fix them can be put into practice by the manager.

• Enhances Coordination and Control: Information and data from a lot of external and internal sources are needed for forecasting. This knowledge is obtained from different internal sources by the various managers and employees. Thus, nearly all of the organization’s divisions and verticals are involved in the forecasting process. This facilitates greater cooperation and communication between them.

 

Limitations of Forecasting 

Along with the advantages, there are certain forecasting constraints as well. Let us have a look at a few of them:

• Just Estimates: The future will be unpredictable at all times. Even if the best methods of forecasting are used and every factor possible is accounted for, a prediction is still just an estimation. With 100 percent effectiveness, one can never predict future events. So even the best-laid plans can be nothing at all. This will still be one of the forecasting’s greatest constraints.

• Based on Forecasts: Assumptions, approximations, natural conditions, etc are the basis of every forecasting system. This renders those predictions inaccurate. So, the inherent weaknesses of forecasting must always be kept in mind and everyone has to be careful about being over-reliant on them.

• Factors Time and Cost: There is usually a lot of data and knowledge needed to make structured forecasts. And, there is a lot of time and money involved in the processing and tabulation of such results. Another aspect is also the translation of qualitative data into quantitative data. One must be cautious that the forecasting time, resources, and effort expended must not overshadow the real benefits of such forecasts.

Why is Forecasting Important in Business Studies?

Business intelligence is a technology that transforms raw data into useful and trustworthy insights in real-time. Businesses will be able to make more educated business choices quicker as a result of this. These integrated systems can supply you with data from the past, present, and future. This data is used by Business Intelligence tools to generate analyses, highlights, dashboards, charts, infographics, and maps, all of which provide comprehensive information into corporate operations. 

Big data and artificial intelligence have altered corporate forecasting methodologies today, and they are always developing to meet business requirements and technological advancements. As businesses become increasingly data-driven, the need to share information and communicate grows. A business intelligence system is a good approach to get the data you need for better forecasting, and better forecasting leads to a more effective, creative, and cost-effective company.

Managing a company necessitates making prompt and well-informed choices is tough. Many organizations, on the other hand, are struggling to keep up with the enormous volume of data being gathered. Business intelligence promotes and improves real-time decision-making while decreasing the burden and expense of data processing and analysis. 

Finally, forecasting allows organizations to get insight into data, helping them to change and react to future projections by maximizing resources. There are a number of techniques that can help a business gather more data and get a better picture of how operations, procedures, budgets, and other aspects of the business are now operating, as well as what needs to be altered or improved in terms of achieving future objectives and prospects. Forecasting can offer critical data to any company, regardless of the sector it belongs to. The word impartial comes to mind when describing a solid forecast. It accurately depicts the demand history’s expected pattern.

AOA or Articles of Association is rightly known as the ‘rule book’ of the company. The AOA lays down all the rules and objectives of the company which one must adhere to it. 

In this content, we will know about Articles of Association and their importance regarding the company.  

What are Articles of Association?

When a company is formed, certain rules and regulations are laid down along with the objectives of the company’s operations and its purpose. These laws regulate the internal affairs of a company. There are two important sets of documents that define these objectives and govern the functioning of the company and its directors or internal affairs. These documents are Articles of Association (AOA) and Memorandum of Association (MOA). Here, we will discuss in detail the Articles of association. 

Articles of Association contain the by-laws that regulate the operations and functioning of the company like the appointment of directors and handling of financial records to name a few. Let’s imagine the company as a machine. The articles of association then can be considered the user’s manual for this machine. It defines the operations that the machine is supposed to perform and how to do that on a day-to-day basis.

Definition of Articles of Association of a Company

As per Section 2 (5) of the Companies Act, 2013, Articles of Association have been defined as 

“The Articles of Association (AOA) of a company originally framed or altered or applied in pursuance of any previous company law or this Act.”

Objectives of the Articles of Association

Sec 5 of the Companies Act, 2103 states that the Articles of association:

They do not prevent a company from including additional matters in the AOA or from doing any alterations as may be considered necessary for the functioning of the company affairs.

Contents of the Articles of Association

The AOA contains the rules and by-laws for the following;

Share capital: 

Rights of various shareholders, share certificates, payment of a commission, etc.

• Lien of shares

• Calls on shares

• The process for the transfer of shares

• Transmission of shares

• Forfeiture of shares

• Surrender of shares

• Process for conversion of shares to stocks

• Share warrants

• Alteration of capital: Increase, decrease, or rearrangement of capital 

• General meetings and proceedings

• Voting rights of members

• The appointment, remuneration, qualifications, powers of directors, etc.

• Proceedings of the boards of directors’ meetings

• Dividends and reserves

• Accounts and Audits

• Borrowing Powers of the company

• Provisions relating to the winding up of the company

Forms of Articles of Association (AOA)

The forms for Articles of Association (AOA) in tables F, G, H, I, and J for different types of companies have been mentioned under Schedule I of the Companies Act, 2013. AOA must be in the respective form.

• Table F- AOA of a company limited by shares

• Table G- AOA of a company limited by guarantee and having a share capital

• Table H- AOA of a company limited by guarantee and not having a share capital

• Table I- AOA of an unlimited company and having a share capital

• Table J- AOA of an unlimited company and not having a share capital

Difference Between Memorandum and Articles of Association

Solved Questions on Articles of Association

1. What are the conditions for the provisions of entrenchment in the AOA?

Ans: The provisions for entrenchment provide specific provisions in the AOA that can be altered if certain conditions are complied with. These conditions are usually more restrictive than those applicable for a special resolution. The provisions for entrenchment can be added on the formation or after an amendment. However, in both cases, the company must give notice to the Registrar of the same.

• The inclusion of the provisions for entrenchment can be done:

• At the time of formation of the company

• By amending the Articles with approval from all members of the company. 

• In the case of a public limited company, it can be done with a special resolution.

2. Can the AOA be altered?

Ans: Section 31 of the Companies Act states that the Articles of Association can be altered at any time by a special resolution. A copy of the same must be filed with the Registrar of Companies. However, this power of alteration is subject to two restrictions:

• The alteration must be under the provisions of the Act

• The alteration is subject to conditions stated in the MOA

• Any alteration that converts a public company into a private company must be approved by the Central Government.

3. Can the AOA go beyond the scope of the MOA?

Ans: MOA and AOA are two key documents that come into being at the time of the company formation. The Articles of Association are subsidiaries not just to the company but also to the Memorandum of Association of a company. The MOA is a fundamental constitutional document of the company. Any articles that go beyond the Memorandum of Association are deemed ultra vires. 

Accounting is an academic field that can be defined as a process of reporting, recording, summarizing, and interpreting economic data. Introduction to accounting is essential for any organization as it helps in making better decisions that lead to effective choices. This is done by providing information on the financial status of the business.

According to the American Institute of Certified Public Accountants (AICPA), accounting is the art of recording, classifying, and providing a summary in an essential manner and in terms of money, transactions, and events. These transactions and events have, at least in part, a financial character. The results of these events and transactions can later be interpreted.

These days almost everybody uses accounting. Hence, a good knowledge of accounting can be beneficial for all students. One can also look at accounting as a language of finance. And if one wants to learn this language of finance, then he or she needs to learn its basics and important aspects. Some of those aspects are given in a list below.

Economic events are basically consequences an organization has to undergo whenever any number of monetary transactions are involved. For example, purchasing new machinery, machine installation on-site, and transportation.

• Measurement, Identification, Recording, and Communication

The accounting system must be outlined in a manner that the right data is identified, measured, recorded, and communicated to the right individual and at the correct time.

This refers to the level of a business operation and the size of activities.

• Interested Users of Information

Interested users of information refer to communicating important financial information to the customers. This is according to what will be used for making the right decision.

Also, apart from all of this, there are also some basic accounting procedures. Those accounting procedures are:

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The Basic Accounting Procedures

In this section, readers will be able to understand the basic accounting procedures in more detail. Those basic accounting procedures are:

1. Double Entry System

There are two main methods that can be used for accounting. These methods are single entry systems and double entry systems. Usually, the double entry system is used for higher quality accounting purposes. It is an important accounting mechanics process and system.

It should be noted that the double entry system of accounting mainly deals with either two or more accounts. These accounts are dealt with for every single business transaction. Students should remember that the double entry system is a basic and very fundamental concept that encompasses both accounting and book-keeping currently.

Also, every financial transaction has an equal and opposite effect in, at the very least, two accounts. The equation for this can be mentioned  as:

Assets = Liabilities + Equity

There are also several advantages of using the double entry accounting or system. If you want to learn what those benefits are, then go through the list that is given below.

• A double entry system helps in enhancing the accuracy of the accounting. This is done with the help of a trial balance device.

• Profit and loss that one suffered during a year can be calculated through details.

• An organization can follow the double entry system to keep the accounting records in greater detail. This helps the organization in exercising control.

• Comparison can also be made by referring to the recorded details. The details of the first year can also be compared with the second year. Any deviations that are found during the comparison can be dealt with later.

These are all the major advantages of using a double entry system.

2. Traditional Approach

The traditional accounting approach is used for classifying the accounts in an organization. Also, there are different classifications that are made for the types of accounts. These classifications of accounts are:

These accounts are often of natural people, human beings, and artificial people. Personal accounts can also be classified into different types, including natural persons, artificial persons, and representative persons.

These are the accounts that don’t fall under the category of personal accounts. These types of accounts are classified into different kinds, including real accounts and nominal accounts. Real accounts can further be differentiated into tangible real accounts and intangible real accounts.

These are the important types of traditional approaches to accounting.

3. Journal and Journalising Process

There are several transactions that are carried out in an organization every single day. Some of these transactions can be similar while others can be different. This is why it is not possible to keep all the journalising process without writing it or recording it down.

Further, one has to ensure that nothing is omitted or avoided in these transactions. This is why these transactions are kept in books. And journalising can be defined as the traditional form of keeping records of everything that is happening in an organization.

Also, a journal is the book of primary entry. It is also known as the book of original entry. This means that transactions are first entered in the book and it is also the most vital book of accounts. The transactions should be recorded in a systematic and chronological manner.

Journals can also be used to keep track of all the accounts that are debited or credited. Students should remember that keeping a record of transactions in ‘journals’ is known as ‘journalising the entries.’ There is also a list of activities that are recorded under journal entry.

4. Modern Approach of Accounting Classification

When it comes to the modern approach, the accounts are either credited or debited. This means that the accounting equation can be used to debit or credit an account. Hence, it is known as the accounting equation approach. There are also several modern rules of accounting.

The basic accounting equation that is valid in this case is:

Assets = Liabilities + Capital (This is known as the Owner’s Equity)

This equation can also be expanded in the form of:

Assets = Liabilities + Capital + Revenues – Expenses

Further, it can also be said that Profit = Revenues – Expenses

It is important for the accounting equations to remain balanced every single time. Further, one should also keep in mind that every equation has a dual aspect. This means that every transaction would either affect the debit side or the credit side.

It is also possible for a transaction to affect two accounts on the debit side or two accounts on the side of credit. This information should help students answer questions like what is a modern approach as we have given a modern system of accounting introduction in this section.

Fun Facts About the Fundamentals of Accounting

Do you know that there are several fundamentals of accounting? Some of those fundamentals are given below in a list.

An asset can be defined as the economic value of an item that is possessed by an organization. In other words, assets can also be defined as items that can be transformed into cash. These items can also generate income for the enterprise shortly. Assets are useful when it comes to paying any expenses of the business debt or entity.

Liability is defined as the economic value of an obligation or debt that an organization has to pay some other organization or individual. It can also be explained as the obligations that come out of previous transactions. These are payable by the enterprise. This payment is possessed by the organization.

This is one of the third most important segments of a sole proprietorship’s balance sheet. And one of the primary aspects of the accounting equation is:

Assets = Liabilities + Owner’s Equity

This equation shows the investment made by the owner in the trade minus the withdrawal made by the owner from the trade plus the net income of the business that is concerned.

One might also find it interesting to note that Luca Pacioli is the father of modern accounting.

In businesses, written communication is an important medium for passing information. This form of written communication used for business purposes is termed Business correspondence. The correspondence in business communication can happen within the organization, between different organizations, or between client and organization. 

The importance of business correspondence lies in the fact that it is the formal way of exchanging information by which professional relationships are maintained between organizations, employees, and clients. Since it is in a written form, it can serve as a future reference for the information being communicated.

Business correspondence happens daily in the lives of businessmen in the form of letters to suppliers, letters of inquiry, complaint letters, job application letters, and a few other forms.

 

Business Correspondence Meaning

Business correspondence is an umbrella term used for any form of written communication that happens in business relationships. It could be with business partners or internal communication within the organization.

Business correspondence is mostly in the form of letters. People related to any business understand the significance of business letters since this correspondence in business communication can be used by them to express themselves, ask a doubt or clarification regarding any uncertainty. 

 

The Importance of Business Correspondence

Business correspondence is essential in realizing organizational goals. Meeting people personally can be quite a time-consuming job hence business correspondence helps businesses with:

• Maintaining Proper Relationships – The significance of business letters is governed by the fact that it facilitates effective communication which does not cost the business much. It strengthens the business by making communication, within and outside the organization, clear and concise.

• Acts As Evidence – The importance of business correspondence is further solidified as it lets businesses keep records of facts that can serve as evidence at a later point in time.

• Creating Goodwill – A company’s growth increases due to business correspondence. It creates goodwill between business and clients since any letter like a complaint, feedback, or suggestion promotes a healthy relationship.

• Costs Very Less – Business correspondence is an inexpensive mode of communication in terms of money as well as time. This method of correspondence in business communication is very convenient for businesses.

• Removes Ambiguity in Communication – It is a formal correspondence between the involved parties which helps in unambiguous communication.

• Helps Businesses Expand and Grow – A business can have a seamless flow of information regarding any product or resources through business correspondence. This helps in the proper utilization of manpower and time management, which in turn leads to expansion and growth in business.

 

Types of Business Correspondence

A business typically uses many kinds of business correspondence in its day to day activities. There are six most common kinds of business correspondences in the business community as defined below:

1. Internal Correspondence – The flow of information between employees, departments, branches, and units of the same company is termed internal correspondence. They can be formal or informal. 

1. Some examples of formal internal correspondence are promotion letters, a formal request for approval, a memorandum, etc. They are mostly printed on paper.

2. A routine or informal internal correspondence can be a quick instruction between a manager and subordinate, which are mostly in the form of emails.

2. External Correspondence – The communication between 2 different organizations or between an organization and a client comes under external correspondence. This type of correspondence in business communication is usually made to suppliers, existing and prospective clients, government offices, etc.

3. Sales Correspondence – Any communication related to sales is called sales correspondence. It is not only concerned with the sale of a product or service but encompasses many other activities. It includes marketing letters, invoices, discount letters, statements of accounts, etc.

4. Routine Correspondence – Such correspondence happens routinely like orders, inquiries, invitations, replies, etc.

5. Personalized Correspondence – This involves personal and emotional factors. Some of the examples of this type of correspondence are letters of gratitude, congratulation letters, appreciation notes, letters of request for a recommendation, etc.

6. Circulars – This type of correspondence is used when a business has to convey a common matter to a large audience. A few examples are notices of tenders, change in contact information, etc. 

Qualities of effective business communication can be summed up in the figure below:

 

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What is Correspondence?

Correspondence is simply written communication from one person to another for various reasons: to report information, convey feelings, or ask questions. It can be verbal or written. The communication may include memos and emails. It can range from formal to informal. In all cases, it is a two-way exchange of information.

The goal of business correspondence is to communicate accurately and effectively. Therefore, it is important to select the most appropriate format for the message and its recipients. Business correspondents can include people or businesses. They may include individuals who are in a position to give or receive business information, such as a president, a vice president, a chief operating officer, and/or a business manager. Businesses are entities, such as a company, a subsidiary, or a joint venture. Businesses may include other groups of people who are in a position to receive or give business information. Such groups may include the human resources department, the finance department, the legal department, and/or the communications department. Finally, they may include businesses. They may include government organizations, non-profit organizations, political campaigns, advocacy groups, and/or social organizations.

Business correspondence can include memos and emails. Memos are typically short (two-page or less) documents that explain information or contain instructions. E-mails are short text documents that can be sent to one or more recipients. Both types of business correspondence contain similar information, such as the purpose, date, author, and recipient.

The format of business correspondence is one of the most important factors in determining its success. The right format will help get your message across and make it appear clear to the intended reader. You can use the information below to help you select the correct format for your message and its intended recipients.

If you are writing to a business person, there are many different ways to send a memo, the most common being to email the document.

In addition, you may use email to send messages to groups, including all the people in your organization. For example, you may email your organization’s president to introduce yourself.

There is also the e-mail address of the chief executive officer or CEO of a business. This may be different from the company’s mailing address and you will need to double-check. Many companies also have their Web sites and frequently post their chief executives’ email addresses on their homepage or other areas of the site.

Business Correspondence (or Business Letters) is a form of written communication usually used in the workplace and sent and received as part of the job of a business professional. The form is mainly employed when there is an urgency for a reply to a particular letter or message. It is different from regular communication because it’s done via a business-like medium. Business letters are usually written in the style of a formal document; however, they often need to be brief and well-organized. They are usually used in business, especially when communicating with or giving information to clients, vendors, contractors, other businesses, and/or other business people. Business letters are commonly used in the business world, in addition to the more common personal letters.

The letter and the business are often separated by the word ‘Correspondence’. ‘Business Correspondence’ may mean anything from a sales letter or letter sent from one business person to another, to an employee’s letter sent from a workplace back to a company, or a personal letter sent to a business.

A business letter is considered a formal letter by many people. However, if there is a need for something in a business letter to be informal, it can be done by using, “I would like to ask…,” instead of “I would like to propose…” (i.e. the word ‘I’ or ‘me’ is placed at the beginning of the sentence). Sometimes a more informal greeting is used with formal business letters, as a reference to an example above: “Hello”, “Dear, _________”, “Dear Sir, Mr._________.”

In English, the term correspondence (also spelt “correspondence”) comes from the Latin corresponses, from cor, “heart” + responsus, “answer”. Correspondence is not as common as the English word letter, with which it may be substituted in modern dictionaries (excepting military usage).

 

Format 

Business letters follow many standard formats. Letters that contain all the information needed to make a decision can be quite short. Sometimes they are only a simple reminder of an action or a request for more information. Business letters are written on business stationery, or as a result of sending a letter in response to an enquiry. A reply letter may follow the action letter, containing information that is in response to the information in the action letter. Alternatively, information may be supplied in a questionnaire. A letter with many details often follows a standard format called a model, or template.

 

Model 

A model sometimes called an executive letter, is a template or model that provides a style, tone and structure of business letters, with a set format and many sections. Different types of models exist for different purposes, often including a preamble, text, signature block, and response. The model can usually be found in a book, an instruction manual or a software manual. A cover letter is often sent as a model for a business letter or an email.