RELATIONSHIP BETWEEN FINANCE AND OTHER DEPARTMENT OF AN ORGANISATION

A healthy and vibrant economy needs a financial system that moves funds from people who have to those have not to have productive investment opportunities. How well your hard-earned savings are channelled to productive sector. This analysis also demonstrates the important link between the financial system and the performance of the aggregate economy. The relationship between finance department and other departments in an organisation could be seen in the function performed by money or finance. This unit deals with the relationship between finance department and other departments in an organisation in term of the following:

•  medium of exchange 
• unit of account 
• store of value 

OBJECTIVES

At the end of this unit, you should be able to:

• explain medium of exchange 
• explain unit of account. 

Medium of Exchange

In almost all transactions of an economy, money in the form of currency or cheque performs the function of medium of exchange. It is used to pay for goods and services. The uses of money as a medium of exchange promotes economic efficiency by minimising the time spend in exchange of goods and services. The finance department is the source of keeping other departments running in terms of purchases and salaries of staff; and it encourages specialisation among economic agents. Finance has eliminates the principle of double coincidence of wants as was experienced during the barter economy. People are encouraged to go about their duties rather than waste their time looking for people who have what they want and need what they have. Therefore, money or finance promotes economic efficiency by eliminating much of the time spent exchanging goods for services. It also promotes efficiency by allowing people to specialise in what they do best.

Unit of Account

Finance also plays the role of a unit of account. That is, it is used to measure value in the economy. People are ready to work and have their services valued in terms of the wages that will be paid for. It would have been much difficult in term of exchange of services vis -a- vis the amount paid for the service.
Departments in an organisation will function well and the problem of quoting prices in terms of units of money is reduced. Finance department restores confidence in other departments of an organisation as money is (being used as a unit of account) reduces transaction costs in an organisation.

Store of Value

Money also functions as a store of value; it is a repository of purchasing power over time. The store of value of money is used to save purchasing power from the time income is received until the time it is spent. The finance department of an organization serves as an engine room, which gives lifeline to other departments in the organization as it solves their financial problems when one arises.

As people work, they are confident that as long as the finance department is functioning, payment of their salaries is assured, no matter how long it stays. Any transaction in an organisation ends in the finance department, either to pay or receive pay on behalf of the organisation.

CONCLUSION

Finance department is the life wire of any organisation, whether profitable or non-profit organisation. The department coordinates the activities of the organisation,- pays the salaries of workers and finances the activities of the organisation. It is the department, which other departments looked up to for any of its action or inaction.

SUMMARY

This unit shed light on the importance of finance department in any organisation. It also sees the activities of the finance department in terms of medium of exchange for services rendered, unit of account, and a store of value. Since people work and are not paid immediately and have to wait until the end of the month, and sometime more than a month before salaries are paid.

TUTOR-MARKED ASSIGNMENT

• Mention and explain why finance department is necessary in an organisation. 
• Identify and discuss the differences between the stored value and unit of account function of a finance department of and organisation.