Commerce

Definition: Commerce refers to the well organized set up of large-scale

interchange of products, service or something of value, for money or money’s
worth, among the economic agents. It covers all the activities which directly or
indirectly assist in the process of exchange.

Basically, it is concerned with the distribution aspect of the business. It relies

on the fact that everything that is produced, must be consumed. In this way,
‘commerce’ comes into the picture, to facilitate effective and uninterrupted
buying and selling of goods and services.

Characteristics of Commerce
Commerce is a subset of business and not a synonym. Come let’s talk about
its characteristics:

 Commerce provides the necessary link amidst the producers of goods and
consumers of goods.
 It is known for the exchange of goods and services for adequate
consideration.
 Commerce covers the services delivered by various organizations, to facilitate
the free flow of goods and services.
 It removes all the barriers, as to person, place, time, risk, knowledge, finance,
etc. in the process of exchange.
 Profit acts as an incentive for carrying out commercial activity.
 It tends to create utility.

Classification of Commerce
 Commerce can be classified into two categories:

1. Trade: As we all know that trade is the sale, transfer or exchange of goods and
services, for mutual benefit. The person engaged in the trade of goods is
termed as a trader, who acts as the middleman between the producer and
consumer of goods. It is further subdivided into two categories:
o Internal Trade: When buying and selling of goods and services is undertaken
within the geographical boundaries of the country, as well as the consideration
is paid in the country’s legal currency or by way of banks and the
transportation system of the country is used, for supplying the goods and
services.

o Wholesale: In wholesale trade, the goods are bought in large quantities from
the producers and the sold to a number of retailers.
o Retail: In retail trade, the retailer purchases goods from the wholesaler for the
purpose of reselling them to the consumers in small lots, for a profit.
External Trade: When the purchase and sale of goods and
services take place between two countries, it is called as external
trade. It can be classified into three categories:
o Import: When goods are purchased from a foreign country, it is called as an
import.
o Export: When goods are sold to a foreign country, it is called export.
o Entrepot: Entrepot trade means re-export, i.e. goods imported from a foreign
country, not for domestic consumption but for selling it further to another
country.
Auxiliaries to Trade: Auxiliaries to trade covers all those activities which
help in the efficient flow of commercial activities. There are various
hindrances in undertaking trade. Auxiliaries to trade help in eliminating
those hindrances:
Transportation: Transportation activities facilitate in the removal of
the hindrance of place, as goods are produced in a specific
location only, while they are demanded in varied locations. Hence,
these goods need to be moved from their place of origin to the
place of consumption.
Warehousing: Warehousing involves safe storage of the goods,
which facilitates the removal of the hindrance of time.
There are a number of goods which are produced in specific seasons, for
instance, cotton, juice, sugar etc. However, they are needed throughout the
year, on a daily basis for different purposes and then there are some goods
which are needed season-wise such as woollen clothes, umbrellas, etc.

Hence, warehousing provides proper storage for such produce.

Banking: Banking helps in providing financial assistance to the

enterprise, i.e. it removes the hindrance of finance.
We all know that goods are not purchased at the same time when they are
produced, and so there is a time-gap between the production and
consumption of goods. And during this period, the entrepreneurs require funds
to finance production. Therefore, banks help in raising funds.

Insurance: We all know that there is always a risk involved in the

transportation of goods and services from one place to another.
With the insurance, the risk of theft or fire can be removed and the
organization can be free from the fear of loss during transit.
Advertising: Until and unless firms advertise their goods and
services in the market, customers may not be aware of the goods
 available. Hence, advertising facilitates the removal of the
hindrance of information/knowledge.
Advertisement is the best tool for making people aware of the goods and
services, with just one message, that communicates its features and
usefulness, through various channels, such as radio, television, internet,
newspaper, etc.

Communication: The goods and services provided by different

organizations are required to be communicated among the
buyers. In the same way, goods and services needed or desired
by the buyers have to be conveyed to the sellers, by way of
orders.
In layman terms, commerce is not just about the exchange of goods and
services, rather it includes all such activities which are essential to bringing
goods and services from the point of origin to the point of consumption.

What is GAAP?
Generally Accepted Accounting Principles or GAAP is a defined set of rules and
procedures that needs to be followed in order to create financial statements, which are
consistent with the industry standards.

GAAP helps in ensuring that financial reporting is transparent and uniform across
industries. As financial information is based on historical data, therefore in order to
facilitate comparison between data from various sources, GAAP must be followed.

GAAP is developed by the Financial Accounting Standards Board (FASB)

The following GAAP principles can be discussed:

1. Principle of Consistency: This principle ensures that the organizations use consistent
standards while recording the transactions.
2. Principle of Regularity: This principle states that all the accountants abide by the rules and
regulations as per GAAP.
3. Principle of Sincerity: This principle states that an accountant should provide an accurate
depiction of the financial situation of a business.
4. Principle of Permanence of Method: This principle states that consistent practices and
procedures should be followed for financial reporting purposes.
 5. Principle of Prudence: This principle states that financial data should be reasonable,
factual and should not be based on any speculation.
6. Principle of Continuity: This principle states that the valuation of assets is based on the
assumption that the business will be continuing its operations in the future.
7. Principle of Materiality: This principle lays emphasis on the full disclosure of the true
financial position of the business.
8. Principle of Periodicity: This principle states that business entities should abide by the
commonly accepted accounting periods for financial reporting such as yearly, half-yearly,
etc.
9. Principle of Non-compensation: This principle states that no business entities should
expect compensation in return for providing accurate information in financial reporting.
10. Principle of Good Faith: This principle states that all the parties involved in financial
reporting should be honest in reporting the transactions.

Role of Commerce in the economy development

The role of Commerce in economic development is very important and our goal is to define
career opportunities in commerce. If we define Commerce, Commerce is the organization that
deals with exchanging goods between industries and the industrial world. But in a broader sense,
Commerce is the subject related to the exchange of goods and services and activities directly and
indirectly associated with the exchange.
Benefits of Commerce in economic development:
There are countless benefits of Commerce in economic development:
1.Commerce tries to satisfy human requirements:
As the world is changing, human needs and wants are also increasing. They are some needs that
are called essential, and some called secondary wants. Commerce is one of the fields that brings
the enhancement to exchange one product into another. But now, because of the advancement,
we can get the opportunity to grab anything from anywhere in the world. Thus, the increase in
people’s desires increases this field’s scope, and people study human wants and desires and
therefore promote social welfare.
2.Commerce is the best option to increase the standard of living.
Commerce increases the standard of living of people. In simple words, if we define the standard
of living, it means the quality of living enjoyed by society members. When people add more
products to their lives, it will enhance their standard of living. To use a variety of products, it is
first essential to secure them. Commerce also helps us plan things at the right time, right place,
and at the right price, which improves the standard of living.
3.Commerce builds a connection with producers and consumers:
Commerce bridges the gap between producers and consumers because production is meant for
ultimate consumption. Consumers build a connection between producers and consumers and
among retailers and wholesalers. Consumers get information about any product through
advertisements, commercials,s, and salesmanship. The producers of the products get information
about goods through marketing research. Therefore, Commerce builds connections between the
centers of production and consumption and makes connections between them.
4.Commerce building employment opportunity:
The growth of the commerce industry brings a lot of employment options for people. It opens
the doors of banking, transport, warehousing, and advertising, etc. These agencies need people to
look after their functioning increase in production results in boosting employment opportunities.
Therefore, the development of Commerce generates thousands of earning resources for people.
5.Commerce generates income and wealth for the nation:
When the production of any economy increases, it will automatically increase the wealth of any
country. .In developing companies, manufacturing industries and Commerce go together nearly
80% of total national income. It is the best source to generate foreign exchange by way of
exports and duties levied by imports. Thus, Commerce increases the national income and brings
wealth to the nation.
6.Commerce also quite helpful in expanding aids for trade:
With the increase in the growth of trade and commerce, there is also a need to expand and
modernize aids to businesses such as banking, transport, advertising, and insurance are best for
the smooth conduct of Commerce.
7.Commerce also encourage industrial development :
 Commerce looks after the smooth transaction of goods and services available by industry.
Without the involvement of Commerce, the industry finds it difficult to maintain the flow of
industry production. It helps in the industry by increasing the production of goods on the one
hand. On the other hand, Commerce also helps in exposure to the necessary raw material and
other services. Therefore, Commerce helps in making proper division of labour and quite
beneficial for industrial progress.

8
.Commerce promoted international trade:
Commerce secures and makes a fair distribution of goods throughout the world. By using
transport, countries do exchange their commodities and earn foreign exchange which promotes
international trade. This is also useful for importing machinery and also enhancing sophisticated
technology. Thus, it shows the faster economic growth of any country.
9.Commerce role in underdevelopment countries:
The financial ratio of underdeveloped countries is relatively low. Underdeveloped countries can
import more technical know-how from any developed country and in return, advanced countries
can import raw materials from undeveloped countries.
10.Commerce is the best options during emergencies:
Commerce helps a lot, especially in the phase of emergencies such as earthquakes and wars.
Commerce helps reach essential requirements such as medicines, foods, and other goods critical
to the affected areas. Therefore, Commerce brings advancement to the world. It is all about the
exchange of goods and services. It includes all those activities which directly or indirectly
facilitate that exchange.

Exporting and Importing – Meaning,

Advantages and Disadvantages
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Exporting goods and services refer to sending them from the home country to a foreign
country. Similarly, Importing goods and services means purchasing or bringing them
from the foreign market to the home country. This is the easiest way a firm can get into
international business, as it requires almost no investment in setting up a production unit
in a foreign country, only distribution channels are made to successfully import or export
goods.
There are two ways a firm can export or import:
 Direct Exporting/Importing: In Direct Exporting/Importing, a firm directly deals
with the customer/supplier of the foreign country and performs all the formalities,
including shipment and financing of goods and services.
 Indirect Exporting/Importing: In Indirect Exporting/Importing, a firm deals with
the customer/supplier with the help of middlemen. They do not directly deal with the
customers/suppliers. With the help of middlemen, most of the formalities and work
are done, such as export houses or purchasing businesses or offices of overseas
customers, or wholesale importers in the case of import operations.
Advantages of Importing and Exporting:

1. Easiest and Simplest: Exporting and Importing is the easiest way to enter into the
international market as compared to any other modes of entry. Here, there is no need to
set up and manage any business unit abroad, which makes the process easier.
2. Less Investment: Less investment is required in the case of exporting/importing as it
is not mandatory for the enterprise to set up a business unit in the country they are
dealing with.
3. Less Risky: If there is no investment or very less investment required in
exporting/importing in the foreign country, the firm is free from many risks involved in
foreign investment.
4. Availability of Resources: As the resources are unevenly scattered around the globe,
it is very important for every country to export/import goods around the globe, as no
nation can be 100% self-sufficient.
5. Better Control: Exporting/Importing can provide better control over the trade, as there
is very less involvement in the foreign country. Everything is controlled by the home
country and there is no need to set up a unit in the foreign country.

Disadvantages of Importing and Exporting:

1. Extra Cost: Since goods are to be sent to different nations, there is some extra cost,
incurred in packaging and transportation of goods, which is a major limitation.
2. Regulations: Different countries have different policies for foreign trade, and
sometimes it becomes difficult for a company to comply with the rules and regulations of
each country they are dealing with.
3. Domestic Competition: The companies involved in exporting/importing have to face
severe competition in the domestic country due to the presence of domestic sellers.
4. Country’s Reputation on Stake: Goods that are exported to different countries are
subject to quality standards. If any goods that are of low quality are exported to any other
country, the reputation of the home country becomes questionable.
5. Documentation: Exporting/Importing requires obtaining licenses and documentation
for foreign trade from every country, which can become frustrating at times.
6. Multitasking: Managing business across different countries involves a lot of
multitasking, which can be hectic for a company.