Introduction of Finance

Finance can be defined as the science and art of managing money. (Gitman & Zutter, 2012).
Finance is
usually related to money. This is partly true since the finance manager or finance officer is often
considered as fund custodian.
However, the term finance has not gained a universally accepted definition despite its significant
role in the activities of advanced; do not provide a precise definition of the term. Rather, the books
simply outline the activities or work performed by people in finance. This may be due to the wide scope
of finance and it interlocking relationships among its different areas.
The American Heritage Desk Dictionary defines finance as the management of money and other
assets. This definition suggests that finance is directly related to money or to a business activity that
primarily deals with money transaction.
Finance is both a science and art of correct application of the economic and accounting concepts
and principles that define the system, structure, and process of management, allocation, and utilization
of financial resources, investments, and expenditures.
This definition will be applied to all the discussions in this module. Remember the following key
concepts of finance:
1. Both a science and art
2. Application of economics and accounting concepts and principles
3. System, structure, and process
4. Management, allocation, and utilization
5. Financial resources, investment, and expenditures
Both a Science and an Art
 Finance, as a field of specialization, deals with and is strictly governed by financial facts and
truths.
 Financial decisions are made based on financial statements. The financial statements present
relevant, factual, and true information about the financial performance of a business.
 Financial is also considered an art. The different financial services continue to change and
develop as the operations of the business organization become more complicated
 As business practices change over time, new financial theories are introduced by experts or
specialists in the field of finance
Application of Economic and Accounting Concepts and Principles
Finance used to be considered an integral part of economics. Today, finance functions as a

separate specialized field that operates closely with economics and accounting. Hence, finance
is not merely a part of economics but an application of the concepts and principles of both
economics and accounting.
 Economics, as a social science, is concerned with the efficient utilization of scarce resources to
satisfy human needs and wants. Economics variables such us price, demand, supply, income,
and expenditures are the focus of study in the development of economic theories and
principles.
 Accounting is an art of recording business transactions and deals with the preparation of
financial statements. The recording process follows the Philippine Financial Reporting Standards
(PFRSs) which is in accordance with the international standards. The financial statements, the
final products of the whole accounting process, provide useful information to finance.
Accounting is considered as the language of both business and finance.
System, Structure, and Process
 The field of finance provides and clearly defines a systematic, structured, and procedural
mechanism on the various financial activities affecting the business.
 The term system connotes that the financial activities of the business are properly coordinated
with the whole structure.
 Through the proper application of the system, structure, and process, nothing in the financial
sphere of the business happens by chance or accident. Every financial activity has a purpose.
Management, Allocation, and Utilization
 Economically, the fundamental concern of finance, is to ensure that the limited in order to
achieve the financial goal of a business.
 In this context, management implies the efficient handling of business resources, particularly
those that are financial in nature. Allocation connotes the wise distribution of financial
resources to the different functional areas, the proper assignment of funds between current and
non-current assets, and the correct sourcing of funds based on the concepts of risk and return.
 Financial resources that are properly managed, allocated, and utilized significantly influence the
financial performance of the business.
Financial Resources, Investments, and Expenditures
 Financial Resources refer to the funds of a business which are provides by the owner or by the
creditors. The resources of the business are largely intended to handle the current operating
activities that the other activities that will have long-term effects.
 Financial investments are resources that are expected to provide income and achieve
appreciation or growth of the business. The financial benefits that are usually derived from
financial investments come in the form of interest and bonds.
 Financial expenditures of a business may cover the operating expenditures and the capital
expenditures. Operating expenditures are period costs that include business expenses such as
salaries, electricity and water, traveling expenses, and the like. Capital expenditures involve the
acquisition or construction of buildings, machinery, processing plant, and land.

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Finance can be defined as the science and art of managing money. (Gitman & Zutter, 2012).

Both a Science and an Art

Application of Economic and Accounting Concepts and Principles

Finance used to be considered an integral part of economics. Today, finance functions as a

Management, Allocation, and Utilization

Financial Resources, Investments, and Expenditures

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