The main characteristic of the economy is the social economy, which is supplemented by state regulation. Therefore, it is very important to understand the concept of finance. They play a crucial role in the structural diversity of market relations.
What is finance?
The concept of finance is very important for the economic structure. Any money is a special resource, and quite scarce. Therefore, financiers should be able to save, shape and competently spend. The financial system is such a specific structure that allows you to precisely form and also spend money for a certain period of time. At the initial stage, during the creation of any state, this science belonged only to the category of income and expenses of only one state. They were allocated for the maintenance of the army, social assistance to citizens, respect for borders, administrative and judicial apparatus, and so on.
In the modern world, the concept of finance has become more multifaceted. Any state revenue is formed from tax deductions paid by citizens. Therefore, finance can be considered as the totality of absolutely all cash receipts that are in the full possession of any state (any organization or enterprise, possibly a private person, individual). The management, formation, monitoring and use of these funds is the responsibility of the respective ministries.
What does a financial system consist of?
The concept of any finance is not limited only to state structures.
They can be divided into 3 categories:
- state;
- corporatism;
- personal funds (that is, cash of a particular individual).
Therefore, any financial system is a community or a set of absolutely all sections and spheres of the economy.
Finance - their role in the economy
The role of finance is in multiple use and redistribution. With their help, you can direct cash flows in the right direction, in concert, depending on demand. Thanks to finances, there is a circuit of various social forms, as well as individual and production funds. Finance affects the quantity and quality of any production.
Financial impact stimulates social development, for example, expansion of production, social control and economic programs, as well as increasing all state welfare.
What are the finances?
The function of finance is not only in targeted allocation to secure and generate income. Finance also includes financial assistance. For example, subvention and subsidy. The first is free of charge (subvention), the second - on a preferential basis.
These are funds that are transferred to any organization, enterprise or legal (private) person that does not need to be returned (in the case of a subvention), or partially reimbursed (in the case of a subsidy).
The state of finance can be described as the sufficiency of funds or, conversely, the insecurity of any enterprise with money. Each structure has certain parameters. For example, the state of the finances of an entire state, a company or an individual family can be analyzed by the resources that are necessary for the normal functioning of this structure. That is, the totality of all income that a subject, region, country or individual needs to function, conduct business, maintain life in general.
Types and varieties of finance
What are the types of finance? In economics, there is such a thing as financial relations. They are divided into groups, depending on the subjects who are directly involved in them.
Finances are:
- State - that is, all revenues and expenses of the state. For example, schools, museums, cinemas and theaters, various universities, technical schools, as well as clinics and hospitals and many other organizations receive funds from the budget.
- Corporate - means of commercial organizations, the main purpose of which is to get their own benefit from their activities. Such organizations are engaged in the sale of specific goods, as well as various market services.
- Public - here various public organizations for example, political parties, charitable foundations, and many others. Revenues to the general part of state funds from such public organizations come in the form of various membership dues, gifts, and the like. Since this is a fairly small unit, they do not play a special role (as independent financial entities).
- Personal - this group includes various types of population finance. The basis of such income is made up of wages earned by able-bodied members of society. Also in this group include pensions and various benefits. The latter are allocated from public funds, which are regulated by special financial funds.
The main functions of finance
If to explain in simple words, then such functions are control and distribution of financial resources.
Distribution function - occurs with a proportional division of domestic resources and total national income. For a better understanding, consider an example. The organization received any revenue from the sale of its goods. Such a sum of money is not distributed into its component parts. For example, production costs, profits, salaries for employees and employees and so on. For a complete distribution of finances to occur, it is necessary that the following conditions are met - tariffs, rates, various deductions, such as insurance and pension, rates, etc. are defined.
Control function - there is control over all cash flows. Both are interconnected. Functions of finance are fully manifested only with full control at all stages of their creation, formation, distribution, and use.
How to manage finances?
The state has developed a whole financial structure in order to correctly distribute and manage capital. Any financial management can be characterized by the following parameters: assets and liabilities. It is the correct distribution and management of state and budget capital or personal funds that helps to reduce the necessary costs and, accordingly, greatly increase profitability and profitability.
In order to best allocate funds, financing plans must be clearly presented and specific goals to be achieved must be outlined. Assets include all monthly income, liabilities - expenses. Their balance must be strictly observed so that assets are always higher than liabilities. Only in this case, the budget will be positive.
Financial management is a whole science that should be known not only by a public servant, but also by an ordinary citizen. What for? To independently and competently manage their own funds. Any family budget also has its assets and liabilities. Therefore, financing laws are relevant not only at the state level, but also for a particular citizen.
Financial Management Example
For a better understanding, consider the following financial calculation.
- The organization sold a certain amount of any product, and received revenue in its current account.
- Further, from the amount received, it must make certain contributions to the state budget, that is, pay taxes.
- At the next stage, this company needs to allocate some of the funds to maintain a continuous production process.
- Then you need to deduct another part of the funds, which will go to pay, pension contributions to the insurance fund and so on.
- The remainder is already profit.
From this example it is clear that without the movement of certain funds, in this case, the proceeds from the sale, neither the state budget, nor the workers, nor the pension fund itself, no one would get their share. It is such a movement of material assets that provides financial resources.
What do finances consist of?
The main task of state finance of any state is to provide this state with cash. Therefore, they consist of the following structures, such as the state budget, various funds, which are extrabudgetary structures, as well as state loans.
Financial systems can be divided into: finance of enterprises, state and population. In turn, state finances are also distributed - state credit, state budget and extra-budgetary funds. The state budget is interconnected with the Ministry of Finance and the Ministry of Taxes and Levies. It should be noted that the tax system works to replenish state funds.
How can you evaluate finances?
Any financial enterprise is evaluated according to certain indicators. In some cases, rapid diagnostics are performed. Why is this done and in general, why is it necessary?
Evaluation of finances is very important economically. With early diagnosis and identification of violations in the activities of any financial structures, you can take the necessary measures and thereby improve the general condition. For express diagnostics, analytical programs are used. Such methods help to monitor general indicators, such as liquidity, capital intensity, return on various funds and more. During analytical activities, you can explore the activities of not only your own enterprise, but also competitors. For advanced study and analysis, more extensive calculations are performed. Certain methods allow us not only to understand what is the cause of any violations, but also to find out the cause of their occurrence in more depth and detail. To conduct such a diagnosis, statistics are used that are open for free use on various government websites and in analytical databases.
Financing example
You can consider the example of finance directly on the expenditure of the state budget.
The finance system is divided into two main links:
1. Finances of enterprises, which, in turn, include commercial and non-profit organizations, as well as financial intermediaries.
2. State and municipal finances that are allocated to the budget system and state loan.
3. The budget system can also be divided into several links: federal, territorial and municipal, or local budgets.
4. And also all budgets are allocated to: a pension fund, a social insurance fund, federal and territorial funds of compulsory medical insurance.
Thus, the concept of finance, their role and functions are the basis of the economy, both of the state as a whole and for individual members of society.
