Classification of Business Activities

Hello Friends, Business Activities are the most important aspect of a business. It enables a firm to reach its goals. In an organisation, there is not only one but several business activities are conducted so as to achieve our goals. It enables the organisation to sustain in the long run. For attaining more sustainability, a firm has to perform its operations regularly with time to time. There are various activities which are involved in the business such as operating activities financial activities and also investing activities. On the Basis of classification, business activities are of two types:

(1) Industry

(2) Commerce

Now let us discussed these to topics in detail:

(1) Industry

In simple sense, Industry is a geographical area of large number of firms which produce different commodity and compete with each other to earn maximum profit. It is that place where different goods are produced and are sold for profit. Generally it changes the shape of the product. It converts raw material of a product to the finished goods. It is the initial source of business. All business activities starts from the production and end at consumption by the consumers.

Mainly producers produce three types of goods:-

(a) Capital goods: Capital goods are those assets which are used in the production of a commodity. All those equipments which help in the production of final goods or consumer goods are called Capital goods.

For Example: When a Producer of a machine firm produces a machine and put to sell for another firm to buy. Another firm uses the same machine to produce consumer goods. So, the machine which produces the final goods is called Capital goods.

(b) Intermediate goods: Intermediate goods are the raw material or addition to the raw material which is used in the production of consumer goods. These are the goods which ate being added or mixed during the process of manufacturing. Such as steel, wheat sugar e.t.c

For example: Suppose a farmer produces wheat and now this wheat is being crushed and used in the process of flour production. For the company that wheat is intermediate goods. 

(c) Consumer goods: When both capital goods and intermediate goods are combined, they produce final goods which are consumed by final users (consumers). All production take place to satisfy the consumer wants by selling consumer products.

For Example:  Suppose there is Britannia Cake Company who produces delicious cake. Now how this firm does produce cake? There is a separate process which is to be done. But if we think of producing, we just know that this cake manufactured from raw material which is an intermediate goods and the machine has manufactured it which is capital goods.; So, in simple sense we only say that this cake be made from the inclusion of both intermediate goods and Capital goods.

Types of Industries

 Up till now, we have read that Industry may produce goods both producer and consumer. Did you know that there are also types of industries in which different goods are produced in different forms? There are various types of Industries but the main two are:

(i) Primary Industry

 From the word “primary” we understand that this industry produce primary goods which is used for further production of consumer goods. These industries produce raw material from the nature Such as, material taken from the plant, animals and other natural resources.

Primary industry is also divided into two forms:

(a) Genetic Industry

This type of industry reproduces various plant and animal and when they grow up, they sold out in the market for a price or profit. The animals do breeding and multiply by giving birth to their siblings and this lead to the increase in profit earning. The examples are fish hatcheries, cattle rearing, forestry etc.

(b) Extractive Industry

This is another type of industry. As its name suggest, It produce useful raw material by extracting the useful minerals from beneath the earth such as petrol, diesel, coal and various other component which is needed by the secondary industry to convert it into finished goods. It involves various activities which involves in the assembling processing and utilizing of various natural resources.                        

For example: Suppose an industry produces petrol cans (filled). Then the main component for the industry is the petrol which they had to fill in these cans and sell out. So, the petrol making company sell the petrol to the various companies who do the work of making petrol cans. So, in this way petrol become the primary resources and therefore extracted out.

(ii) Secondary Industry

Secondary industries are those industries which use the goods of primary industry and produce the final or consume goods. It plays the most important in satisfying the consumer wants. It reaches the customer at the point of satiety (satisfaction). This is a place where the process of production comes to an end.

Mainly there are two types of Secondary industry:

(a) Manufacturing Industry: It is the most prominent type of industry. As the name suggest, this industry only do the work of manufacturing different products. It changes the shape of the product. All semi-finished and raw material is converted in the finished goods (final goods.)

Manufacturing has a wide scope in business. If you did not manufacture goods, then what did you sell? And how did you earn profit.

For Example: Suppose there is a firm who manufactures clothes. It is the time of winter. The firm is largely in need of wool and we all know that wool is a genetic product which taken out by cattle rearing. So, to manufacture woolen clothes, firm would buy wool from the genetic industry which helps the firm in producing woolen clothes.

(b) Construction Industry: This type of industry includes the firms who do the work of construction various dams, bridges and various other assets. But we cannot directly say that these goods are being sold in market as these goods are immovable property. They utilize the products or the ingredients such as brick, cement, putty and various other materials to produce the commodity.

For example: If a constructor get a contact to make a building, so in order to make a building the constructor use all the ingredients which is to be consumed in that particular building.

 (iii) Tertiary Industry: This industry is mostly consists of services. This industry provides various services to the different sectors of business. Due to this, it is also called as service sector. The services which provided by this particular industry are airline services, medical services, technical services and various other services are called tertiary Industry.

2. Commerce

All the activities which start from the production place and ends at the consumption place are called commerce. It involves various activities which include transportation of goods, warehousing for storage and last financing from banking etc. It mainly involves exchanging goods and services for earning profit. Commerce mainly shows the marketing part of business widely. It includes two components:-

 

1. Trade

2. Aids to Trade

Now let discuss these topics in detail:

As you know, that commerce plays the main role in promotion and the survival of business. There is a particular chain of commerce and also chamber which we will discuss in the later topics.

1. Trade

 In simple sense, Trade means exchange and buy and sell of goods and services with the aim of earning profit. Trade is the most simple’s form of business. Even a 12 year boy who does have any qualifications can become a trader.

 It involves two people one is seller who sells the product another is the buyer who buys the product. Trader acts as a link between the producers and consumers. It also provides door to door services. It purchase products from producer and later on sells it to the customers or final users.

There are mainly two types of trade:-

(i) Home Trade: Home is an internal trade which takes place internally inside the boundaries of a particular country. It means that both the buyer and seller are the residents of same country. It is the fact that both the persons will exchange goods in same currency which is flowing in that country.

Home trade is also of two types:-

(a) Wholesale Trade: As the word “wholesale” suggest, it is a trade which is done in bulk. The person who performs this type of trade is called wholesaler. Wholesalers sell same type of goods in bulk. It became convenient for a customer to buy good.

Wholesaler serves as a link between the producer and the retailer. It also provides Door step services to the large number of customers. Some of the examples are “Best price”, “Big Bazaar” and many other firms. Nowadays there are various online platforms on which products in bulk are sold.

(b) Retail Trade: Retail trade is the most nearest trade to the consumers. Consumers can make direct contacts with the retailers. The people who perform this type of trade are known as retailers.

They serve as a link between the wholesaler and the customers. He buys different variety of goods in small quantities from the wholesaler and sale it to the ultimate users.

Examples of retail trade are shopkeepers, or supermarket and also departmental store.

(ii) Foreign Trade: Foreign Trade is also known as outland trade, External trade and International trade. Foreign trade gives you a wide platform of selling and exchanging goods and services. Here the trading is done between different countries and in different currencies.

Here, your purchasing is not limited to an extent such as to a region or a country. You can freely trade with any country use the purchased commodity for the benefit of our own country.

As you know, that a single country cannot produce each and every product he needed to increase per capita income, so large number of countries contributes in each and every country and provides more resources to grow and expand.

Foreign countries are of three types:-

(a) Import Trade: Import trade is the trade in which a country takes in various products from foreign countries. Generally, he purchases different goods from other countries.

For Example: India imported machinery for industry from U.K.

(b) Export Trade: In simple words, this is a trade in which a country provides useful products to that country which are in need of that. It refers to the selling of products to other country.

For Example:  India sells wheat grain to U.K. It is an export trade.

(c) Entrepot Trade: Now, it is a different type of trade other than above two. In this trade, a country sell a particular product to the country and if that same country further sell it to the country. That trade is known as Entrepot trade.

For example: India export sarees to the United Kingdom and if United Kingdom sells the same goods to the Japan.

2. Aids to Trade

Aids to trade are also known as auxiliary services which is an addition to the trade. These services are part of the trade and helps in reaching the goods to consumers easily within time. Without these services, trade is incomplete or impossible as there will be shortage of stock without having adequate services.

The auxiliary services are as follow:

(i) Transportation: Transportation is a means through which finished goods are transferred from one place to another. It provides goods to the consumers. It creates utility by transferring goods from place of production to the place of production. It helps the shopkeeper to prevent them from the shortage of goods. If the goods are not transferred on time then the firm will lose the consumers. So, there should be regular and timely supply of goods.

(ii) Warehouse: A warehouse is a place where (perishable) goods are kept stored for a long period of time. It creates time utility as a bridge between time of consumption and the time of production.  Mostly perishable goods which can be easily deteriorate and are kept under preservation. Proper storage arrangement helps the retailer to keep the goods safe and secure for selling it to the consumers at the time of consumption.

(iii) Insurance: As you know, that business involves several types of risk. Some are human risk, some are natural risk and various other types of risk are there which occurs. Due to these risks, firm has to bear a huge lot which may also lead to the dissolution of firm. Some risks are controllable while some are not. Now, there is one way through which losses can be recovered. That way is “Insurance” Most of the persons are getting insured in order to save themselves from huge losses. There are various types of insurance such as Life insurance, Health Insurance, Social Insurance and others.  

FAQ

Q.1. What is the classification of activities in accounting?

 Answer. In accounting, business activities are being classified in different ways. From accountant’s viewpoint, there are only three types of activities that are operating industry, investing activity and financing activity. Accountant only made the accounts of business firm not anyone else. It neither includes industry nor commerce as they are external business activities. Accountant only records those transactions which affect the income and expenditure of business.

Q.2. How does these activities reach to the business goals?

Answer. In a business firm, all activities whether it is small or large are necessary to acquire business goal. There is an entire system of business. At first, the business activity start from industry, there goods are produced and get transported. From there, goods reach the business firm and there good are send to various departments (sales, purchase etc.) for checking. After completion checking, company put the common seal and further transferred goods to the market and there it sold to ultimate users for profit. And hence the business goal is achieved.     

The Last Saying

At last, I would like to say that all business activity revolve around industry and commerce when both of these work togather then only a business firm reach to its goal and become successful. In the middle there are some services which are provided by several people which are a part of commerce and enable the seller to sell without any interruption in the transaction with a buyer.