The essence of finance lies in the totality of economic relations, as a result of which money is formed, distributed and used.
Spheres of the financial system
The financial system of any state has three basic areas of activity:
- public finance (the basis of the system is the state and local budgets, as well as extra-budgetary and other funds);
- the sphere of finance of the enterprise (the basis is the finance of legal entities);
- household finance (budgets of individual citizens).
All these areas are in close interconnection with each other. Forms of financial relationships are a manifestation of this connection.
Forms of financial relationships
The essence of finance involves the following monetary relations:
1. Monetary relations occurring between the state and households are manifested in the payment of taxes and mandatory payments received in local and state budgets. The state provides social benefits, salaries to individual citizens.
2. Monetary relations occurring between the enterprise and households (workers) consist in providing part of the budget of individual citizens through wages, social payments, dividends, as well as interest on securities.
3. Monetary relations of the enterprise with the state consist in ensuring the revenue of local and state budgets with the help of tax deductions and mandatory fees, payments on lease of state complexes. The state, in turn, at the expense of budgetary resources at various levels, invests and provides soft loans to enterprises.
The finances of individual enterprises are key in the formation of the financial system of the country, and also ensure its effective economic and social development.
The finances of enterprises have a great influence on the essence of finance as a whole, as they contribute to the rational conduct of cash flows in the country and their effective use in the process of functioning of the economy.
Key features of finance
- The concept refers exclusively to monetary relations.
- Forced form of manifestation.
- Redistributive nature.
Enterprise Finance Functions
The main functions that finance the company are:
Resource-forming function
It determines the systematic formation of the required amount of financial resources, using various additional sources, in order to ensure economic activity and realize the intended development goals of the enterprise.
Distribution function
This function is closely related to resource-forming. It optimizes the proportions of the distribution of the totality of all available resources through separate trust funds that provide financing for investment and operating activities, as well as return the bulk of the debt on previously received loans.
