Understanding the Fundamentals of Finance

Finance is the study of, inter alia, things concerning investments and the utilization of money. Finance can be broken down into many strands; but the interrelatedness of these strands is what gives finance its broad meaning. Finance is part science, part art and part social science. There are also elements of law and economics as disciplines that help us understand, appreciate, and guarantee the proper use of our finance. In a broader sense, finance can be termed the language of finance.

Public Finance: This is the field that concerns the public’s resources such as income from taxes and purchases made by the public. Public finance includes taxing authorities such as state and federal governments, banks, credit institutions, registered representatives, registered corporations, legal systems, public defenders, insurance companies, labor unions, proprietary institutions, central banks, and other financial services such as pensions, worker’s compensation, business asset management, and international trade. The concepts and principles of public finance include effective management of funds, sound investment practices, responsible credit financing, and preservation of the social welfare system. Public finance also includes governmental policy, structural reforms, and institutional arrangements designed to facilitate economic growth and price stability.

Commercial Finance: This is the part of finance that deals with lending, securing, and distributing loans among corporations, enterprises, and individuals. The commercial loan involves bank borrowing and the issue of secured debts. Common commercial loan products include mortgages, lines of credit, commercial mortgages, commercial hard money, business debt, partnership loans, merchant financing, owner financed loans, and refinancing schemes. These forms of financing are generally categorized according to the risk of loss and time values. Commercial mortgage and lines of credit are categorized as fixed and floating, while commercial hard money is classified as equity-based and commercial owner financed loan as variable.

Accounting Finance: Finance related to accounting is the science of recording financial transactions. Most businesses do not need professional accountants for the purpose of recording their accounts. However, there may be times when it becomes necessary for an accountant to conduct an audit on the accounts of a small businesses. Audits are conducted to find out the accuracy and completeness of the accounts and to ensure that the recorded financial data meet the requirements of the law. Good accounting practices are important for ensuring the efficiency of finance in any organization.

Finance is one of the three main parts of the business universe, which together form the foundation of any country’s economy. As part of the economic services sector, finance provides a number of opportunities to businesses. This finance provides jobs to millions of people across the world.

The three main components of accounting, finance, and banking are distinctively different from one another but are strongly interdependent on one another. Finance is required to generate capital and to make certain that it is invested in productive assets to make the business function properly. In contrast, banking on the other hand is used to maintain and secure the existing financial assets. Accounting uses financial models to provide information about the financial performance of a company, while banking uses actuarial models to provide information about the financial condition of a bank.