Department of Accounting and Information Systems

BBA 1st Year 1st Semester

AIS: 1104 Introduction to Business
Course Teacher: Md. Shahbub Alam, Lecturer, Dept. of AIS, I.U, Kushtia.

Chapter-01 Introduction

1. Concept of Business

 Business is an organization or economic systems where goods and services are

exchanged for one another or for money.
 The exchange of goods, services, or money for mutual benefit or profit.
 Business is an economic activity, which is related with continuous and regular
production and distribution of goods and services for satisfying human wants.

2. History of Business

Business history in the broadest sense includes everything about our business past to present,
from history of individual firms to that of entire business systems.

The modern form of business comes from various stages of evolution. The stages are divided
into three periods.

Ancient age: The ancient age of business was started from beginning of human civilization
and running up to barter system. There is no correct information about the ancient age of
business. In this stage human being depends on nature. They were living together and depended
on the work of agriculture.

Middle age: Middle age of business started from the barter system to industrial revolution. In
the middle age the production and distribution systems were improved. The excess products
were distributed to others. In this age barter systems became very popular and introducing
locational production systems with establishment of organization.

Modern age: Modern age of business had started from industrial revolution and still continues
at present. Most of the industrial tools, machines, and systems introduced in this period of
business. In the modern age currency system was introduced. Distribution of money, transfer
of money were used to play a vital role to introduce banking systems, financial institutions and
money market.

3. Resources used to produce products or services

Natural resources include any resources that can be used in their natural form. The most
obvious natural resource that is commonly used by businesses to produce products or services
is land. Agricultural businesses rely on land to grow crops. Other businesses rely on land to
establish a site for their production.

Human resources are the people who are able to perform work for a business. They may
contribute to production by using their physical abilities, such as working in a factory to
construct a product. Alternatively, they may contribute by using their mental abilities, such as
proposing a change in the existing production process or motivating other workers.

Capital includes machinery, equipment, tools, and physical facilities. All of these types of
capital are commonly used by human resources to produce products. Physical facilities are
typically necessary to produce many services as well as products. Especially in recent years,
technology has enabled businesses to use their capital more effectively.

Entrepreneurship involves the creation of business ideas and the willingness to accept risk.
Entrepreneurs attempt to identify business opportunities. When they find one, they invest some
of their own money to create a business with the expectation that they will earn adequate profits
as a reward for their efforts.

4. Characteristic of Business

Characteristics or features of business are discussed in following points:

Exchange of goods and services: All business activities are directly or indirectly concerned
with the exchange of goods or services for money or money's worth.
Deals in numerous transactions: In business, the exchange of goods and services is a regular
feature. A businessman regularly deals in a number of transactions and not just one or two
transactions.

Profit is the main objective: The business is carried on with the intention of earning a profit.
The profit is a reward for the services of a businessman.

Business skills for economic success: Anyone cannot run a business. To be a good
businessman, one needs to have good business qualities and skills. A businessman needs
experience and skill to run a business.

Risks and uncertainties: Business is subject to risks and uncertainties. Some risks, such as
risks of loss due to fire and theft can be insured. There are also uncertainties, such as loss due
to change in demand or fall in price cannot be insured and must be borne by the businessman.

Buyer and seller: Every business transaction has minimum two parties that is a buyer and a
seller. Business is nothing but a contract or an agreement between buyer and seller.

Connected with production: Business activity may be connected with production of goods or
services. In this case, it is called as industrial activity. The industry may be primary or
secondary.

Marketing and distribution of goods: Business activity may be concerned with marketing or
distribution of goods in which case it is called as commercial activity.

Deals in goods and services: In business there has to be dealings in goods and service.

To Satisfy human wants: The businessman also desires to satisfy human wants through
conduct of business. By producing and supplying various commodities, businessmen try to
promote consumer's satisfaction.

Social obligations: Modern business is service oriented. Modern businessmen are conscious
of their social responsibility. Today's business is service-oriented rather than profit-oriented.
CSR is now a responsibility for all in the world.

5. Importance/Benefits/Advantages of Business

Business benefit is an outcome of an action or decision that contributes to meeting business

objectives. The major benefits of business are as follows:

• Proper utilization of Resources

 • Creating Employment opportunities
• Supply goods and services
• Improvement of living standards
• Increase governmental revenue
• Growth of personal and national income
• Development of banking and insurance
• Development of international relationship

6. The key stakeholders in a business.

Owners: Every business begins as a result of ideas about a product or service by one or more
entrepreneurs. As explained earlier, entrepreneurship is the act of creating, organizing, and
managing a business. Today, more than 8 million people in the United States are entrepreneurs.
Entrepreneurs are critical to the development of new business because they create new products
(or improve existing products) desired by consumers.

Creditors: Firms typically require financial support beyond that provided by their
owners. When a firm is initially created, it incurs expenses before it sells a single product or
service. For example, it may have to buy machinery, rent a facility, and hire employees before
it has any revenue. In the first several months, its expenses may exceed its revenue even if it is
well managed. Therefore, the firm cannot rely on cash from sales to cover its expenses.
The owners of a new business may initially have to rely on friends or family members for credit
because their business does not have a history that proves it is likely to be successful and
therefore able to pay off its credit in a timely manner.

Employees: Firms hire employees to conduct their business operations. Some firms have only
a few employees; others, such as General Motors and IBM, have more than 200,000 employees.
Those employees who are responsible for managing job assignments of other employees and
making key business decisions are called managers. The performance of a firm is highly
dependent on the decisions of its managers. Although managers’ good decisions can help a firm
succeed, their bad decisions may cause a firm to fail.

Suppliers: Firms commonly use materials to produce their products. For example,
automobile manufacturers use steel to make automobiles, while home
builders need cement, wood siding, and many other materials. Firms cannot complete the
production process if they cannot obtain the materials. Therefore, their performance is partially
dependent on the ability of their suppliers to deliver the materials on schedule.

Customers: Firms cannot survive without customers. To attract customers, a firm must provide
a desired product or service at a reasonable price. It must also ensure that the products or
services produced are of adequate quality so that customers are satisfied. If a firm cannot
provide a product or service at the quality and price that customer’s desire, customers will
switch to the firm’s competitors.

7. What is a Barter System?

A barter system is an old method of exchange. This system has been used for centuries and
long before money was invented. People exchanged services and goods for other services and
goods in return. Today, bartering has made a comeback using techniques that are more
sophisticated to aid in trading; for instance, the Internet. In ancient times, this system involved
people in the same area, however today bartering is global. The value of bartering items can be
negotiated with the other party. Bartering doesn't involve money which is one of the
advantages. You can buy items by exchanging an item you have but no longer want or need.
Generally, trading in this manner is done through online auctions and swap markets.

8. Industry and its Types

• Industry is the production of goods or related services within an economy.

• Industry is the work and processes involved in collecting raw materials, and making
them into products in factories.
• The process of extraction, production, conversion, processing, and fabrication of
products are described as industry.

Types of Industries:

Primary industries: Directly involved with natural resources. Examples include fishing,
farming, etc. It includes-

a) Fishing industry: Involves the catching of sea produce from oceans, rivers, seas and
lakes for sale. Some examples of produce are fish, prawns(Chingri), crabs(kakra) and
mussels(jhinuk).
 b) Farming industry: Involves the cultivation of crops and rearing of animals for sale.
Some examples include vegetable farming, cattle ranching and poultry rearing.

c) Forestry industry: Involves the felling of trees in forests for resources, especially
timber. Timer is used for shipbuilding, paper-making and construction work.

d) Mining industry: Involves the extraction of minerals, such as iron and diamonds.
Also involves the extraction of fossil fuels, such as petroleum and natural gas.

Secondary industries: Involves processing and transforming of raw materials obtained from
primary activities or that of packaging manufactured goods.

a) Light industries: Use few raw materials to produce relatively light weight goods.
E.g. manufacture of garments.
b) Heavy industries: Use bulky machinery and large quantities of raw materials to
produce large and heavy goods. E.g. Steel industries.
c) Labour-intensive (Shoe Manufacturing) and Capital-intensive Industries (Oil
refinery).

Tertiary industries (Third): are also known as service industries. Some examples include
banking, education, tourism, entertainment, transportation, and sale or distribution of food.

Quaternary industries (Fourth): involve handling and processing of information and

knowledge (e .g. research and development (R&D), education or consultancy). Quaternary
industries also work towards developing new products and services to meet the needs of
consumers (e.g. R&D in a pharmaceutical company to develop new drugs and medicine)

9. Commerce and Branches of Commerce.

• Commerce is the exchange of goods, services or commodities on a large scale.

• Exchange of goods or services for money or in kind, usually on a scale large enough to
require transportation from place to place or across city, state, or national boundaries.
• Nearly every business transaction is a form of commerce: purchasing food at a
restaurant, buying stocks on the stock market, selling goods in a store, drilling for oil,
etc.
 • The financial industry often breaks down commerce into more specific categories. For
example, international commerce takes place between countries, interstate commerce
is done across state lines, and electric commerce (e-commerce) takes place via the
Internet.

Branches of Commerce:

a) Trade: Trade eliminates the barriers of persons for the smooth flow of goods from producer
to consumer.

b) Transport: Transport removes the hindrances of place. Usually in the current set up, the
places of production and place of consumption are quite for from each other.

c) Warehousing: Warehousing removes the hindrance of time. There is always a time gap
between production and consumption. So, the goods are produced in expectation of demand.

d) Insurance: Insurance removes the hindrance of threat. The goods are uncovered to different
kinds of risks i.e. theft, destruction by fire etc.

e) Banking: Banking removes the hindrance of finance and facilitate the exchange. The
exchanges of goods take place subject to time, place and price.

f) Advertisement and Salesmanship: Advertisement and salesmanship remove the hindrance

of knowledge. The lack of knowledge about the goods and their use restrict the exchange of
goods. It requires advertising campaigns to make the people aware about the availability and
utility of goods.

10. Trade and its Types

Trade refers to buying and selling of goods and services for money or money's worth. It
involves transfer or exchange of goods and services for money or money's worth. The
manufacturers or producer produces the goods, then moves on to the wholesaler, then to retailer
and finally to the ultimate consumer.

Types of trade:
i. Home/Internal Trade: Internal trade is also known as Home trade. It is conducted within
the political and geographical boundaries of a country. It can be at local level, regional level or
national level. Hence trade carried on among traders of Delhi, Mumbai, etc. is called home
trade. Internal trade can be further sub-divided into two groups, viz.,

a) Wholesale Trade: It involves buying in large quantities from producers or manufacturers

and selling in lots to retailers for resale to consumers. The wholesaler is a link between
manufacturer and retailer. A wholesaler occupies prominent position since manufacturers as
well as retailers both are dependent upon him. Wholesaler act as a intermediary between
producers and retailers.

b) Retail Trade: It involves buying in smaller lots from the wholesalers and selling in very
small quantities to the consumers for personal use. The retailer is the last link in the chain of
distribution. He establishes a link between wholesalers and consumers. There are different
types of retailers small as well as large. Small scale retailers includes hawkers, pedlars, general
shops, etc.

ii. External/Foreign Trade: External trade also called as foreign trade. It refers to buying and
selling between two or more countries. For instance, If Mr. X who is a trader from Mumbai,
sells his goods to Mr. Y another trader from New York, then this is an example of foreign trade.
External trade can be further sub-divided into three groups, viz.,
a) Export Trade: When a trader from home country sells his goods to a trader located in
another country, it is called export trade. For example, a trader from Bangladesh sells his goods
to a trader located in China.

b) Import Trade: When a trader in home country obtains or purchases goods from a trader
located in another country, it is called import trade. For example, a trader from Bangladesh
purchase goods from a trader located in China.

c) Entrepot Trade: When goods are imported from one country and then re-exported after
doing some processing, it is called entrepot trade. In brief, it can also be called as re-export of
processed imported goods. For example, a Bangladeshi trader (from Bangladesh) purchases
some raw materials or spare parts from a Japanese trader (from Japan), then assembles it i.e.
convert into finished goods and then re-export to an American trader (in U.S.A).

11. Types of Stores

Depending upon the nature of business, location of action, raw material, market place etc.
Stores' layout is planned. There are basically two broad classes :
a) Functional Stores: It depends on the use to which the material is put – chemicals, tools,
raw materials stores, etc.

b) Physical Stores: It depends on the size and location – Central stores, Sub-stores, Transit
stores, Site stores etc.

Functional Stores can be further classified as:

i) Raw materials store: This is where raw materials used in the factory are stored. Usually,
this is the largest kind and the location should be such that it is situated alongside a railway,
canal or river. Where the deliveries are by road, there must be adequate space for trucks to
move, turn and park. If sufficient provision is not made for quick and easy loading or unloading,
heavy demurrage can result. In certain cases where the raw materials may be explosive
dangerous or poisonous in nature, complete segregation will be necessary.

ii) Production Store: Production also requires a large number of materials, generally called
"consumables", - cutting oils, gloves, aprons, small tools etc. A store stocking such items is
called a Production Store.
iii) General Store: Various kinds of miscellaneous items like paints, brushes, cleaning
materials, wood and spirit are kept here. In some cases where there is no Production Store, the
materials mentioned in (ii) are kept in the General Store.

iv) Tools Store: All kinds of tools files, measuring instruments, saws, small tools like hammers,
pliers, etc. or sell them as scrap. Steel scrap is usually kept separately, preferably in the open.
Some metal scrap like copper can be very costly and should, therefore, be kept safely in covered
stores.

Physical considerations: There can be various types of stores based on the quantity of stocks
held or distance from the point of usage, like central stores, sub-stores, transit stores, site store
etc.
i) Central store: There can be a central store serving three or four factories or several shops in
a large factory or it can be a central warehouse containing finished goods. The word ‘central’
only denotes that it severs various units each of which may have separate sub-stores or
departmental stores. Central stores also exist in multi-plant situations.

ii) Sub-store: A sub-store is located at the place of usage. It can be even within the shop floor

iii) Departmental Store: This serves a particular department of a factory. For example, in a
textile mill there can be several departments like spinning, weaving, bleaching, printing, etc.
each of which can be served by a separate store. The reason behind this is that each requires
sparate kinds of materials. This store, then becomes a specialised store. Actually. There need
be little difference between this category of store and a sub-store.

iv)Group Stores: In some companies it can happen that several factories belonging to the same
group are all in one compound. For example the J. K. Group of Industries has several factories
belonging to the same owner, which have been set up in one big industrial estate. There can be
a garment factory, a chemical plant, a radio factory and a foundry all belonging to one group
and located at the same place. The group stores can serve all these units.

12. Bank and its types

A bank is a licensed and regulated financial institution that lends money, accepts deposits and
carries out other financial transactions for its clients.

Types of Banks: They are given below:

Commercial Banks: These banks play the most important role in modern economic
organization. Their business mainly consists of receiving deposits, giving loans and financing
the trade of a country. They provide short-term credit, i.e., lend money for short periods. This
is their special feature.

Exchange Banks: Exchange banks finance mostly the foreign trade of a country. Their main
function is to discount, accept and collect foreign bills of exchange.

Industrial Banks: There is no industrial banks in Bangladesh. But in some other countries,
notably Germany and Japan, these banks perform the function of advancing loans to industrial
undertakings. Industries require capital for a long period for buying machinery and equipment.

Agricultural or Co-operative Banks: The main business of agricultural banks is to provide

funds to farmers. They are worked on the co-operative principle. Long-term capital is provided
by land mortgage banks, nowadays called land-development banks, while short-term loans are
given by co-operative societies and co-operative banks.

Savings Banks: These banks (perform the useful service of collecting small savings.
Commercial banks too run “savings departments” to mobilise the savings of men of small
means. The idea is to encourage thrift (parsimony) and discourage hoarding(majud). Post
Office Saving Banks in Bangladesh are doing this useful work.

Central Banks: Over and above the various types of banks mentioned above, there exists in
almost all countries today a Central Bank. It is usually controlled and quite often owned by the
government of the country.

12. Importance of Banking

The important role of banks in the development of a country is briefly showing below.

i. PROMOTE SAVING HABITS OF THE PEOPLE: Bank attracts depositors by

introducing attractive deposit schemes and providing rewards or return in the form of interest.
Banks provide different kinds of deposit schemes to its customers. It enable to create banking
habits or saving habits among people.

ii. CAPITAL FORMATION AND PROMOTE INDUSTRY: Capital is one of the most
important part of any business or industry. It is the life blood of business. Banks increase capital
formation by collecting deposits from depositors and convert these deposits in to loans
advances to industries.
iii. SMOOTHING OF TRADE AND COMMERCE FUNCTIONS: In this modern era trade
and commerce plays vital role between any countries. So, the money transaction should be user
friendly. A bank helps its customers to send funds to anywhere and receive funds from
anywhere of the world.

iv. GENERATE EMPLOYMENT OPPORTUNITY: Since a bank promote industry and

investment, they automatically generate employment opportunity. So, a bank enables an
economy to generate employment opportunity

v. SUPPORT AGRICULTURAL DEVELOPMENT: Agricultural sector is one of the

integral part of any economy. Food self-sufficiency is the major challenge and goal of any
country. Bank promote agricultural sector by providing loans and advances with low rate of
interest compared to other loans and advances schemes.

vi. APPLYING OF MONETARY POLICY: Monetary policy is an important policy of any

government. The major aim of monetary policy is to stabilize financial system of the country
from the dangerous of inflation, deflation, crisis etc. The recent increase in repo rate to 6.5% is
just an example of the same.

vii. BALANCED DEVELOPMENT: Modern banks are spreading its operations throughout
the world. We can see number of big banks like Sonali bank, IFIC bank etc. It helps a country
to spread banking activities in rural and semi urban areas. With the spread of banking operations
around the country, bank helps to attain balanced development by promoting rural areas.

13. Insurance and its Types

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange
for payment. It is a form of risk management primarily used to hedge (caution) against the risk
of a contingent, uncertain loss.

This category has the following main two subcategories-. General insurance is General
Insurance and Life Insurance of some subcategories like fire insurance, marine insurance,
vehicle insurance etc. Islamic insurance is also a special type of insurance operating in
Bangladesh. It includes also life insurance and general insurance.

Types of Insurance

Life Insurance: Life Insurance is different from other insurance in the sense that, here, the
subject matter of insurance is the life of a human being.
General Insurance: The general insurance includes Property Insurance, Liability Insurance,
and Other Forms of Insurance. Fire and Marine Insurances are strictly called Property
Insurance. Motor, Theft, Fidelity and Machine Insurances include the extent of liability
insurance to a certain extent.

Property Insurance: Under the property insurance property of person/persons are insured
against a certain specified risk. The risk may be fire or marine perils, theft of property or goods
damage to property at the accident.

Marine Insurance: Marine insurance provides protection against loss of marine perils. The
marine perils are a collision with a rock, or ship, attacks by enemies, fire, and captured by
pirates, etc. these perils cause damage, destruction or disappearance of the ship and cargo and
non-payment of freight.

Fire Insurance: Fire Insurance covers the risk of fire. In the absence of fire insurance, the fire
waste will increase not only to the individual but to the society as well.

Liability Insurance: The general Insurance also includes liability insurance whereby the
insured is liable to pay the damage of property or to compensate for the loss of persona; injury
or death. This insurance is seen in the form of fidelity insurance, automobile insurance, and
machine insurance, etc.

Guarantee Insurance: The guarantee insurance covers the loss arising due to dishonesty,
disappearance, and disloyalty of the employees or second party. The party must be a party to
the contract. His failure causes loss to the first party. For example, in export insurance, the
insurer will compensate the loss at the failure of the importers to pay the amount of debt.

Social Insurance: The social Insurance is to provide protection to the weaker sections of the
society who are unable to pay the premium for adequate insurance. Pension plans, disability
benefits, unemployment benefits, sickness insurance, and industrial insurance are the various
forms of social insurance.

[N.B: All case studies are available in text book]