Understanding Types of Transaction in Trading Company

What is a trading company transaction? Companies are generally divided into three categories based on their activities, namely service companies, manufacturing companies, and trading companies.

In short, a trading company itself is a company that buys merchandise from suppliers and resells it to customers without any processing. In this case, the owner of the trading company can optimize sales with a sales system.

Establishing a trading company is often an option for business people to expand their business to a larger scale. However, to achieve this, you need to know in advance about the types of transactions in trading companies.

In short, transactions are activities that are common to every human being, including companies or businesses. Differences in characteristics between types of companies also cause differences in some transactions.

Definition of Trading Company

A trading business company is described in the accounting world as a business that sells goods that have been acquired in their original form. As a result, trading business firms buy goods from manufacturers and intermediaries for resale without processing them first.

In general, the purchase of goods is a transaction that sees the exchange of two or more assets. This is a one-time transaction that does not require assets to be back to the original seller and buyer later.

The procedure for documenting types of transactions at a trading company is the same as recording transactions at a service company. It’s just that in a trading company, we need different accounts and procedures for buying and selling goods.

Characteristics of Transactions in Trading Companies

Based on its features, you can identify different types of transactions in trading companies. Trading company transactions have the following characteristics:

• Its main functions include purchasing, storing, and reselling products. As a result, the organization incurs transactions and expenses associated with these expense items.
• Things that are not produced by the company, provide by the company.
• This transaction generates profit from sales after deducting purchases and operating costs.
• The transaction is in the form of buying and selling goods without going through any process.
• Accounting and bookkeeping companies use this inventory account procedure for their procedures. This allows production costs and income statements to be calculated in one or more processes.

Types of Transactions in Trading Companies

Transactions are collective activities completed by everyone, including entrepreneurs and businesses. The types of trading company transactions you need to know are:

1. Purchase of goods

Purchasing activities from other parties, whether corporations, people, or shops, are referred to as goods acquisition transactions. Purchases of goods are classified into two categories, namely cash purchases and credit purchases.

2. Purchase refund

If a trading company buys something and discovers it is broken or not what was asked for, the company will return it. The customer has the option of returning the defective items to the vendor.

If the buyback is for cash, the seller will give the buyer a cash return. In the case of a credit transaction, the buyer will provide a debit note as evidence of debt reduction.

3. Sales of merchandise

Merchandise sales are things that are purchased with cash or on credit. Debiting from the cash account as well as crediting to the sales account is how cash sales are documented. On the other hand, credit sales are recorded by debiting the shipping and services receivable accounts and crediting the sales account.

4. Sales returns and price reductions

During trading company transactions, price reductions and sales returns occur as a result of the return of damaged items or goods that are not in compliance with the order. We can use crediting accounts receivable and debiting returns and allowances to record credit sales. Meanwhile, for cash transactions, crediting cash and debiting sales refunds and price decreases are the methods of recording.

Read more: Transactions: Definition, Types, Forms, and Benefits

5. Sales discounts 

Buyers are given sales discounts to encourage them to pay off their debts before the deadline. The amount of receivables that you receive when they are due and recorded in the discount account will be reduced by this discount. Proof of company transactions comes in the form of receipts or cash receipts.

6. Cost of purchasing goods

The cost of transportation of purchases in a trading company transaction is the cost of transporting goods from the supplier’s warehouse to the buyer’s warehouse which will be paid by the buyer.

Discounts will be offered when we have made payment. Grocery delivery transactions can be put into a journal. Credit will become a cash account, and a grocery account will become a debit. Therefore, it is important to use a supporting financial system to keep your records organized.

7. Merchandise Inventory

This type of transaction serves as evidence in recording the value of merchandise inventory at a certain time. This inventory is one type of asset that has a high risk. Therefore, companies need to carry out periodic calculations and control merchandise to be able to manage asset management properly.

8. Pay off debt

If your company is in debt, you must pay your creditors. In this situation, the debt that is often paid by the trading company is the debt to acquire the product, which we do on credit. As a result, it would be better to settle the loan by mutual agreement or before the due date.

9. Receipt of accounts receivable

Suppose a company or seller receives a settlement of receivables from a buyer for purchasing a product on credit. In this case, a settlement requires that all transactions and payments are written down in the books.

Conclusion

As explained above, that’s the type of transaction recording and accounting that you should understand in a trading organization. In addition, all types of transactions must be recorded in a solid accounting system so that you can quickly identify the money and expenses withheld. These tasks will make trading company transactions easier for you.

Another important aspect of any business is accounting because, without it, growth would be more difficult. You can apply software such as Hashmicro Accounting System to make financial reporting, bank reconciliations, journal revisions, invoicing, and other tasks simpler. Get your free demo here!