The 3 main functions of finance

Finance is the monetary relations that arise between economic actors in the formation, distribution and use of money funds; In this post we explain the three main functions that finances have: distribute, control and accumulate.

The essence of finance

Finance is a special economic relationship, which arises in the process of formation and distribution of money funds.

The economic content of finance is money.

They are the material form of finance. No money, no finances.

Finance: are the monetary relationships that arise between economic actors in the formation, distribution and use of money funds. Finance cannot exist without the subjects of financial relations, which conduct calculations with each other in the form of money, since under finance they should be understood not so much by money, as by monetary calculations in the economy.

An economic entity is a legal or physical person that is subject to rights and obligations.

The interaction of economic subjects forms the market, which leads to the circulation of money flows and the emergence of finance. The movement of money between economic subjects forms financial flows and financial funds. This movement embodies the financial relationships that are established with the formation and use of money funds.

Groups of economic subjects: economic subjects (businesses, organizations, etc.), households and the State.

Types of finance: business finance, household finance and public finance.

Financial relations of economic subjects (companies):

The activity of economic entities in the creation of products and the distribution of their value in the constituent elements (determination of production costs, income, taxes, profits, dividends, etc.).
The activity of public administration bodies in connection with payments of different types (customs duties, taxes, fees, etc.).
The activities of the banking system in the obtaining and repayment of loans, the purchase and sale of currencies and securities, the deposit and the term, etc;
The activities of insurance companies for all types of insurance.

The finances of economic entities and households consist of the funds formed as a result of economic activity at the micro level. These include: consumption fund, accumulation fund, reserve fund, etc.

State money funds are formed at the macro level. They include the state budget and extrabudgetary funds.
👉Functions of finances

The main functions of finance: distribute, control and accumulate.
1. Distribution function

The distributive function of finance is expressed through the process of using money, previously accumulated, to meet the relevant needs and requirements of the economic system in terms of financial resources.

This function forms monetary income and accumulation in the creation of social product.

Due to the distribution function, various processes of redistribution of the value of the social product are carried out in all structural units of the economy (in the sectors of material production and in the non-productive sphere) and at different levels of management. economic. Through the distributive function of finance, reproduction is provided with monetary resources.

After the main distribution of finances there is a redistribution of the same, which is carried out by the State for the formation of its budget through various taxes, mandatory deductions and fees.

Thus, the distributive function is necessary for reproduction, the formation of the spending part of the country’s budget, as well as the finances of individuals.


2. Control function

The finance control function is expressed through the financial control of the quantitative and qualitative parameters of the processes of mobilization and use of financial resources. The important role of this function is the possibility of analyzing aspects of the activity of the subject of management.

The control function of finance is manifested in the control of the distribution of the value of the product in the various stages of its transfer to the appropriate funds and its expenditure for the intended purpose.

The control function is performed by the financial control mechanism.

Applying the control function, it is possible to evaluate at the state level the effectiveness of the use of funds for social policy, the investment activities of companies and the viability of family expenses.
3. Accumulation function

The cumulative function of financing is a process of formation (accumulation, mobilization) of funds necessary for the operation of any economic system. This function can manifest itself in the formation of the country’s budget, in the formation of total income in the budget of the company and the family.

The financial functions occur in each of the types of finance that exist: business, household and public. The distributive function is made visible in the use of money, which also favors different processes of redistribution of the economy, the control function is in charge of analyzing the effectiveness of the funds and the cumulative function creates the necessary funds for the economic system.


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