Category: Commerce Notes PPT

Data classification is the process of organizing data according to relevant categories for efficient usage. It helps to locate and retrieve data quickly. This process is vital when it comes to security, compliance, and risk management.

Classification of data meaning, tagging data so that it can be easily tracked. Moreover, it eliminates duplicate data which frees up storage space, lowers backup cost, and accelerates the search process. 

What is Data Classification?

• It’s the process of categorizing data into homogenous (similar) groups based on shared properties.

• Raw data is difficult to comprehend and is unsuitable for further analysis and interpretation. Data organization aids users in comparison and analysis.

• For example, a town’s population can be divided into groups based on sex, age, marital status, and other factors.

Types of Data Classification

There are three types –

1. Content-based classification stands for categorizing data based on the sensitivity of the information it contains.

2. Context-based classification stands for segregating data based on its application, location, its creator, along with other factors like characteristics of the information and indirect indicators.

3. User-based classification is an entirely manual process. It depends on the decision of users on how they want to tag each data. 

Data Classification Methods

Some of the most significant methods are –

1. Manual interval

2. Defined interval

3. Equal Interval

4. Geometrical interval

5. Quantile

6. Natural Breaks

7. Maximum breaks

8. Standard deviation

Objectives of Classification of Data

Its objectives are –

1. Simplification: It helps to present data concisely. Hence, it becomes more convenient to analyze data.

2. Improves Utility: Classification brings out the similarity in different sets of data, which enhances its utility.

3. Brings out Individuality: Classification of data in statistics helps in grouping them in various subheads. This process brings out the uniqueness of each data and assists in its better study. 

4. Aids Comparison: It facilitates easy comparison with a substantial volume of data.

5. Increase Reliability: Classification is a scientific process, and its effectiveness is proven. Therefore, this process increases the reliability of a specific set of data.

6. Make it Attractive: One of the main objectives of data classification is to make it more attractive and enhance its presentation value.

7. Consolidation: Consolidate a large amount of data so that similarities and differences may be rapidly identified. As a result, figures can be grouped into parts based on common characteristics.

8. Priority: To prioritize the most important data while segregating the unnecessary bits.

9. Statiscal Analysis: To enable statistical analysis of the collected materials.

Characteristics of an Impressive Classification

• The primary feature of proper classification is that it makes the data comprehensive. It will cover every item in a set and segregate them into appropriate groups.

• Every data set lacks clarity owing to its volume. This classification brings much-needed clarity and makes it easier to navigate.

• Data in a set is often scattered in various places. Classification brings similar information under a single group and improves homogeneity.

• Every impressive classification must have elasticity, so that, if the purpose of classification changes, the basis of it can change easily.

Data classification is a vital part of economics. Therefore, students who want to learn more about it in detail can visit the official website of .

Classification Methods

The following are the classification criteria:

Classification by Location

• Geographic classification refers to the classification of data based on geographical places such as countries, states, cities, districts, and so on.

• It’s also referred to as ‘spatial classification.’

Classification Based on Time

• A chronological classification is one in which data is classified according to the passage of time.

• Data is arranged in ascending or descending order according to temporal units such as years, quarters, months, weeks, and so on in this classification.

• Temporal classification is another name for it.

Classification in Terms of Quality

• Data are classified using this method based on features or qualities such as honesty, beauty, intelligence, literacy, marital status, and so on.

• For instance, the population can be segmented based on marital status (as married or unmarried)

The Classification that is Quantitative

• This classification is based on measurable parameters such as height, weight, age, wealth, student grades, and so on.

Determining capital or revenue nature is an essential step when it comes to accounting. However, both the capital nature and revenue nature are different from one another on the basis of the time for which the purchases get used.

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Capital Nature

The capital expenditures consist of huge purchases made on fixed assets which can be used for a longer period of time. In simpler words, it means that the acquisition of the fixed assets for a longer duration of time tends to represent the expenditure’s capital nature. Consider, for example, the expenses that are made to buy the manufacturing equipment which can be used for a longer duration of time.

Furthermore, the company which provides the equipment cannot reduce the full cost and a certain amount of cost is needed to be updated depending on the year-by-year devaluation of the equipment. Generally, these are non-recurring in nature.

The Capital Expenditures are basically classified into three types:

1. Expenditures which are made for reducing the costs

2. Expenditures that are made for increasing the revenue

3. Expenditures that are explainable on the non-economic grounds, which refers to the expenditure made that do not have any relation to the money related to profits.

The Examples of Capital Expenditures include:

• The expenses which are related to social activities

• The expenditures that are made to buy machinery

• The investments that are made to do research innovations and work.

Revenue Nature

Contrary to the capital nature, the revenue nature represents the short-term expenditures. The revenue nature, unlike the capital nature, is related to the expenses which are made for the operating periods in specific. Also, these expenditures neither generate any assets nor any liabilities. Consider, for example, the expenses which are made for facilitating the current operation, which include maintenance expenses, repair costs, etc.

There are basically two different kinds of Revenue Nature Expenditures.

1. Expenditures to generate Revenue:

This is a kind of expenditure which is for the already undergoing operational processes. Similarly, the operating expenditures tend to meet the running factory or business cost needs. In that same year during which these expenses occur, in the revenue expenditures, the liabilities of the tax is also lower.

2. Expenditures to maintain the Revenue-Producing Assets:

These are the type of expenditures for the ordinary and generic repairing and preservation costs. The expectations are for keeping the asset in the working condition without having to involve the increasing life and workability of the asset.

The Examples of the Revenue Expenditures are as Follows:

1. Salaries for the jobs.

2. Paying different kinds of rents for shops, houses, etc.

3. Legal expenses.

4. Advertising expenses.

5. Insurance expenses such as life insurance, vehicle insurance, etc.

6. Electricity and water bill payments.

The revenue nature expenditures, unlike the capital expenditures, are recurring in nature.

Determining Capital Nature and Revenue Nature

There are a few basic considerations for determining the capital nature and revenue nature. These are as follows:

1. Nature of the Business

The capital or the revenue nature depends on the kind of business that a person does, which differs from one business to the other. For example, a business which provides car insurance to people falls under the revenue nature of expenditure, however, the manufacturer that buys machinery for his business falls under the capital expenditure.

2. Recurring Nature of the Expenditure

The capital expenses are non-recurring in nature, while the revenue expenditures have a recurring nature.

3. Purpose of the Expenses

The manufacturing procedure is an example of the capital nature whereas the repairing and renovation procedures are regarded as revenue expenditures.

Differences between Capital and Revenue Nature?

There are various differences between revenue and capital nature of expenditure. But the fundamental difference is that capital expenditures are the long-term acquisitions of fixed assets. Whereas revenue expenses are short-term that are limited to specific operating periods. Revenue expenditure are neither generated assets nor liabilities

• Example for Capital Expenditure, the expenditures that are used to buy manufacturing equipment that can be used for longer durations.

• Example for Revenue Nature, the expenditure to facilitate the current operation like repair costs and maintenance expenses.

Students of Commerce to various concepts that are both theoretical yet practical as they are to do with personal and professional finance. If we put our minds to it, we will surely learn a lot! This section deals with the topic of fixed cost and variable cost. 

Whether you are part of a company or run a business yourself – cost is a fundamental brick without which no company can ever run! It is the total monetary value incurred by a company for the purpose of manufacturing products or ensuring its services reach the target audience. 

Fixed cost remains unmoving for a long period of time while variable cost keeps changing based on the expenditures and assets of the company. 

You will know you have understood these two concepts well when you are able to differentiate between fixed and variable cost in a given set of data.

Fixed Cost

The fixed cost is more or less an independent variable. Irrespective of the productivity or operations of a company, these costs have to be borne by the business at all periods of time. For instance, the commercial rent for the structure occupied by the company is an ideal example of fixed cost. It has to be paid by the company throughout its period of functioning, irrespective of whether it is making profits or not. 

These costs may rarely be subject to changes. They are usually constant over a long period of time.

 Variable Cost

The variable cost as opposed to the fixed cost is dependent on the operations and productivity of the company. A few instances of variable cost include the salaries, utility bills, manufacturing costs and so on. Naturally if the production of the company is at a low, variable costs will be lower. However if the company is running in a full swing, the variable costs will be equally high. 

Fixed and variable costs are an essential part of running an organization. But both need to be monitored and kept within their limits. If they exceed a set target, it could prove to be detrimental for the operations of a company.

The report lists the balances of a company at a certain point in time of all the general ledger accounts. The accounts that are reflected on the trial balance are all related to major accounting items such as equity, assets, revenues, liabilities, expenses, losses, and gains. The trial balance is generally used to identify at a certain point in time, the credit entries and the balance of debits from the transactions that are recorded in the general ledger.

Features of a Trial Balance

The trial balance usually includes a list of totals of accounts of the general ledger. The general ledger accounts should include the description of the account, the account number, and the final debit/credit balance. Along with this, the trial balance should include the accounting period of the report being created. The trial balance does not show each separate transaction, only the accounts total whereas the general ledges show all the transactions of the account. If any adjusting entries were entered, the trial balance should show the adjusting entry, the figures before the adjustment, and the balances after the adjustment.

What is a Balance Sheet?

The balance sheet is a key part of both financial modeling and accounting. The company’s total assets and how they are financed, either by debt or equity, are displayed in the balance sheet. The balance sheet can also be described as a statement of financial position or a statement of net worth. The fundamental equation that describes the balance sheet is Assets = Liabilities + Equity.

Features of a Balance Sheet

In a balance sheet, the assets and the liabilities are divided into two separate categories which include current assets or current liabilities and noncurrent (long term assets) or noncurrent liabilities. After the illiquid accounts or non-current accounts such as plant, property, and equipment (PP & E) and the long-term debt, more liquid accounts are placed such as cash, inventory, and the trade payables.

Difference between a Trial Balance and a Balance Sheet

Concept of Trial Balance 

Trial balance is an internal report generated by a company’s accounting department that lists general ledger accounts as well as its balances. The columns in the trial balance show the credit balance and debit balance amounts.

The figures in these columns are subsequently summed up for showing that the consolidated credit balance is equal to the consolidated debit balance. 

Importance of Trial Balance

Trial balance acts as the precursor to the preparation of financial statements as well as assessing the arithmetical accuracy. It is used for the verification of actual amounts from various ledgers. It also leads to the determination of the balances of all ledger accounts, which are eventually used for the financial statements.

It assists in the rectification of errors and makes due adjustments. Such adjustments are relevant only for the particular accounting year. Trial balance also helps in the comparative analysis with a previous year’s balances and the current one. 

Concept of Balance Sheet

As an external reporting document, the balance sheet forms a part of the financial statement of a company. It is primarily a summary and report on the balances generated out of liabilities, assets and the equity accounts held by stockholders in the general ledger of a company.

Due to this fact, a balance sheet is also referred to as “Statement of financial position”. This financial statement pertains to a particular date which is usually the accounting period’s last date. 

Importance of Balance Sheet 

The importance of balance as a part of a company’s financial statement can be understood along with the documents of cash flow and income statements. All of these combined together help in indicating the financial position of the company to the interested parties. It imparts the information about what the company owes and owns. 

Such information is particularly crucial for such investors who seek to derive insights on the operations and financial health of a company for considering whether it will be a sound investment option.

Trial Balance vs  Balance Sheet 

The table below shows how to distinguish between trial balance and balance sheet.

Table 1: Trial balance and balance sheet difference 

Trial Balance Example 

Let, the following be the trial balance of a consulting company, XYZ. 

Table 2: Trial Balance of XYZ

Table 2 shows that the credit equals the debit. However, the figures in the trial balance do not indicate accuracy, and it is entirely possible that an item or transaction may have been missed or a wrong expense account has been entered.

Balance Sheet Example 

Table 3: Balance sheet of XYZ

A balance sheet can be presented in two formats – (a) report form and (b) account form. Table 3 shows the balance sheet of XYZ in report form.

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A company refers to a group of individuals who are associated together to attain a common goal. A company incorporated under the Companies Act of 2013 or any other company law is legally defined as a company. There are certain advantages and disadvantages of incorporation. Incorporating a company can create a separate legal entity for itself, have perpetual succession, provide power to own particular property, create the capacity to sue, and have easier access to capital. However, it also has some significant disadvantages. 

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The image shows the paperwork on the incorporation of a company. The disadvantages to incorporation are further explained in the details below.

Introduction to Incorporation 

Incorporation is the legal process of formation of a new corporation of any kind such as a business, sports club, cafe, nonprofit organization, etc. Incorporation becomes an independent legal entity that is recognized by law. These companies can be identified on their behalf by terms such as “Inc” and “Limited”. It will be a  legal entity completely separated from the owner.

Steps in Incorporation of a Company 

1. Determining the availability of names 

2. Drafting Articles of Incorporation and Articles of Incorporation 

3. Prints, signatures, stamps, memorandums and article reviews

4. Power of Attorney

5. Documents to be Filed with the Registrar of Companies

6. Statutory Declaration in e-Form

7. Payment of Registration Fees

8. Certificate of Incorporation

 

Disadvantages of Incorporation 

1. Formalities and Expenses 

Starting a business is a very complex and long legal process that requires a great deal of time and money. These sophisticated procedures discourage people who are seriously and passionately uninterested in doing business. Even after the establishment of the company, it must be very tightly controlled and must follow the statutory provisions of the Companies Act. Certain special events or activities such as accounting, company audits, meetings, borrowing, lending, investment, and capital issuance, dividends, etc. must be carried out and performed strictly in accordance with the Companies Act. 

Other companies do not have to follow as many rules and regulations as they do.

2. Corporate Disclosures 

Despite the large legal framework designed to ensure maximum transparency and disclosure of company information, not all the information is available to the company employees and others in the management. Everyone has limited access to the company’s information. 

3. Separation of Control from ownership 

Shareholders of a company who are in minority do not really have control of the functions and decisions of the company. 

This is because the number of employees in a company is so large that even individuals or  a small number of people cannot make a significant impact on the work of the organization. 

Therefore, the position labeled “ownership” is just a term that has no real meaning. You have no active or complete control over the activities of the company. 

4. Payment of Heavier Taxes in Some Cases 

Compared to other forms of companies, incorporations have to pay higher taxes as they do not receive discounts or minimum tax limits. 

They are also required to pay income tax at a fixed rate on all income, while other legal entities are taxed in stages or at a fixed rate. 

Therefore, many companies often start as private or partnership companies. And as the scale grows, it becomes an incorporated company.

5. Social Responsibility 

Many companies have billions of dollars in assets and employ hundreds of thousands of people. They have a significant impact on society, and these companies often participate in social activities that are part of their corporate social responsibility (CSR) campaigns. These incorporation companies are so influential that they must adhere to certain social norms and contribute to the development of society.

Economic elements that influence business and consumer behaviour are referred to as the economic environment. The economy of a country has an impact on investment decisions. There are several factors, both internal as well as external  that affect the economy.

 

Elements of Economic Environment

Several external factors have a significant influence on a country’s economy. These factors play a huge role in deciding consumer behaviour and financial flow of a country, thereby affecting its economic activities. All these elements together constitute the economic environment definition.

 

These elements of economic environment are as follows –

Gross Domestic Product is the total value of all products and services produced in a country. Therefore, the growth of GDP signifies that the economy of a country is stable and improving. It also means that people have more disposable income that, in turn, leads to increased demand for products and services.

 

It evaluates the financial worth of final goods and services—those that are purchased by the end user—produced in a country over a specific time period (say a year). It includes all of the output generated within the country. GDP  also includes non-market production, for example, education services which are provided by the government itself.The GDP growth rate measures the economic reports and amount of a country ’s economic growth (or contraction). Faster growth in the gross domestic product (GDP) expands the overall size of the economy and strengthens fiscal conditions.

A high level of unemployment in a country means that such an economy is not using its resources to its full potential. At the same time, it would negatively impact individual disposable income that will result in lower demand. It affects the commercial aspect of an economy significantly. This phenomenon is markedly noticed in the existing economic environment in India.

 

The individuals not only lose income but also face other hurdles financially as well as mentally. Government expenses extend further than the provision of benefits to the loss of worker output, which  eventually reduces the gross domestic product (GDP) which in turn leads to economic issues and then poverty. It will lead to lower GDP growth and fall in tax revenue for the government.

When the overall prices of goods and services increase in a given period, it is known as inflation. It happens when even though the prices of goods and services are rising the general income level of consumers stays the same. Therefore, individuals have less money at their disposal. Small businesses and cottage industries are also affected as prices of raw goods and labour increase, resulting in smaller profit margins.

 

The propensity for the price level to rise over time is referred to as inflation. Inflation boosts prices and has the potential to reduce the purchasing power of consumers. People buy more than they need to avoid paying higher costs tomorrow, which drives up demand for products and services. Suppliers are unable to keep up. Worse still, neither can salaries. As a result, most individuals are unable to afford common products and services. Inflation reduces the value of pensions and savings.

Government policies also play a huge role in influencing the economy of a country. Government policy can have a major influence on the economic environment. This can include fiscal or monetary policy. An example of monetary policy is a reduction in interest rates on bank loans which encourages consumers’ demand for loans. An example of fiscal policy would be when the government decides to reduce income tax.  Both of these policies attempt to gradually increase individual disposable income and encourage consumers to spend more, thus boosting commercial activities.

It can influence interest rate, taxation and a rise, which tends to increase the borrowing cost. Consumers will spend less if the interest is higher but if the interest rate is lower it might attract investments. In general, a government’s active role in responding to the economic circumstances of a country is for the purpose of preserving important stakeholders’ economic interests. 

The banks are considered to be one of the most crucial aspects of the Indian economy. As a consequence, any reforms in this sector will have a huge impact on the economy.

 

The banking sector plays a vital role in the betterment of the economy. By boosting the quality of financial services and increasing money accessible, banking sector openness may directly improve growth.

India has a mixed economy where both the private and public sector plays a significant role. While the public sector plays a valuable role in carrying out plans and reforms, developing infrastructure and building a strong industrial base, the private sector is responsible for generating employment opportunities. About 80% of the population is working in either organised or unorganised private sectors.

 

The public sector promotes economic development at a rapid pace by filling gaps in the industrial structure. It reduces the disparities in the distribution of income and wealth by bridging the gap between the rich and the poor. Agriculture and other activities like dairying, poultry come under the private sector. It plays an important role in managing the entire agricultural sector.

Briefly, Balance of Trade (BOT) is the difference between the money value of a country’s imports and exports of material goods only whereas Balance of Payment (BOP) is the difference between a country’s receipts and payments in foreign exchange. When the exports are greater than the imports, it leads to a favourable trade balance. It means there is a high demand for its goods offshores, and that increases the demand for its currency.  On another hand, when the outflow is greater than the inflow, there is a current account deficit.

 

BOT records only merchandise and doesn’t record transactions of a capital nature. BOP records transactions relating to both goods and services. BOP is a true indicator of the economic performance of an economy. 

The consumer is confident about his purchasing habits or decisions when they know they have income stability, and income is stable when the overall economy of a country is. It also affects the markets. For instance, if manufacturers and retail stores detect weak consumer confidence, they have to manage their inventory and cut back on production. Therefore, the economy will experience a slow down and ultimately, recession. A stable and growing economy usually boosts a consumer’s confidence.

 

The confidence of consumers impacts their economic decision and hence is a key indicator for the overall shape of an economy.

 

Role of Economic Policies

The basic purpose of economic policy is to help their country thrive economically through determining tax rates, money supply, government budgets, and interest rates, among other things.

 

Apart from the components of the economic environment, economic policies introduced by the government can also have an impact on markets. The components of economic policies are mentioned below.

 

Liberalisation

Liberalization is a broad phrase that refers to any process in which a government removes limitations on some individual person activities. It occurs when something which used to be banned is no longer banned. In simple language, you can say that Govt. eliminates regulation on private firms and trade.

 

Earlier it was restricted by the government for the production of goods and there is various permission that has to be taken from Govt. Due to this, there was a strong influence of the government in business.

 

This refers to when a state lifts the restrictions imposed on private business ventures so as to enable them to continue their operations without any hindrance and to facilitate economic growth. For instance, in 1991, the government of India removed some previously enforced restrictions on Indian companies. This includes –

• Removing almost all licenses except for a few

• Freedom in setting the price of products and services

• Reducing tax rates

• Relaxation on import and export of goods

• Allowing foreign investment in India

Some features of liberalisation in India are:

• Abolition of the existing License Raj in the country.  

• Reduction of interest rates and tariffs. 

• Removing the state sector’s monopoly from several aspects of our economy.

 

 Privatisation

In general, privatisation involves transfer of all national economies from the public to the private sector. Privatization can take multiple forms, one of which is the ‘partial or total denationalisation of assets.’ Disinvestment of government’s equity in PSU’s and the opening up of hitherto closed areas to private participation is the meaning that economics generally specifies.

 

The privatization of government assets and functions are seen to generate savings for taxpayers by increasing efficiency, improving incentives, and reducing waste. 

This refers to when industries in the private sector are given more roles and the participation of the public sector decreases. Toward this, the Indian government took several steps like – 

• Migrating public sector organisations to the private sector

• Setting up a board to manage those public sector enterprises that are not performing well

• Selling off government-owned stakes to private organisations

Recently, The Centre had proposed to privatise the Indian Overseas Bank (IOB) and the Central Bank of India.

 

A recent example of privatisation would be when the Indian government opted to privatise Bharat Petroleum Corporation Limited in November 2019.

 

Globalisation

Globalisation refers to something that encompasses or connects the entire world rather than being limited to a single country.

 

We exist in a world that is now constantly linked. Our everyday lives are strewn with the imprints of other cultures, communities, and economies. The smartphone we use may be made in China, the clothing we wear could be made in Bangladesh, and the fast-food places we frequent could be from a little state in the United States.. It determines how quickly globalisation rates can move by allowing countries to expand their links for mutual benefit with other countries.

 

This refers to when the economy of a particular nation integrates with the world or global economy. This is done via increased trade with other countries, the use of technology, foreign direct investments, etc. The Indian economy was globalised in 1991 when it faced a severe economic crisis.

 

Impact of LPG Policies in India

The above economic policies were adopted by our government when India went through a major financial crisis in the year 1991. These policies impacted the business environment of our country in several ways. These include – 

• Indian companies faced increasing competition from foreign businesses.

• They had to adopt new technology into their business to keep up.

• Indian industries became more market-oriented, which means that they started manufacturing products based on customer demands.

• Companies focused on developing the skills of their employees. 

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