As we know, 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 processed first. Establishing transaction types in trading company is often an option for business people to expand their business to a larger scale.
But to be able to achieve this, you need to know in advance about the transaction types in trading company. In short, transactions are activities generally carried out by all humans, including those carried out by a company or business. Differences in characteristics between types of companies also cause differences for some of the transactions that take place.
Understanding Trading Company
Trading firms are described in the accounting world as businesses that sell already bought goods in their original form. As a result, trading companies purchase items from manufacturers and intermediaries to resell them without processing them first.
In general, a buy of goods is a transaction in which two or more assets are exchanged. This is a one-time transaction that does not need the assets to returned to the original seller and buyer later. The procedure of documenting transaction types in trading company is essentially the same as that of recording transactions in service firms. It’s only that in a trading corporation, we need different accounts and procedures for purchasing and selling items.
Characteristics of Transaction in Trading Company
Based on their features, you may identify the different types of transactions in a trading company. A trading company transaction has the following characteristics:
- Its primary functions include purchasing, storing, and reselling products. As a consequence, the organization incurs transactions and expenditures associated with these spending items.
- The things that the company does not manufacture the firm offers.
- This transaction creates profit from sales after deducting purchase and operating expenses.
- The transaction takes the form of buying and selling things without going through any processing.
- The inventory account is used in this company’s accounting and bookkeeping procedures. This enables the production costs and income statements to calculated in one or several processes.
Types of Transaction in Trading Company
Transactions are collective activities carried out by everyone, including entrepreneurs and businesses. The transactions types of trading company that you need to know are:
1. Purchase of goods
Purchasing activities from other parties, whether corporations, people, or shops, are referred to as transactions in acquiring items. Purchases of items that classified into two categories: cash purchases and credit purchases.
2. Returns of purchase
If a trading company buys something and discovers it is broken or not what was requested, 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 purchased with cash or on credit. Debiting from the cash account and 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. Crediting accounts receivable and debiting returns and allowances are used to record credit sales. Meanwhile, for cash transactions, crediting cash and debiting sales refunds and price decreases is the method of recording.
5. Sales discounts
Buyers are provided sales discounts to encourage them to pay off their debts before a deadline. The number of receivables you receive when they are due and recorded in the discount account will reduce by this discount. The company’s evidence of transactions comes in the form of receipts or cash receipts.
6. The expense of purchasing freight
The purchase freight expenses in trading firm transactions are the costs of transporting items from the supplier’s warehouse to the buyer’s warehouse, which the buyer will pay. The discount or discount will offer when payment has been received. The grocery delivery transaction is subsequently entered into the journal. The cash account is credited, and the grocery account is debited. As a result, it’s essential to use a supporting financial system to keep your records organized.
7. Inventory of Merchandise
Goods inventory is used to document the worth of merchandise inventory at a certain point in time. Therefore, this inventory is an example of a high-risk asset. As a result, the corporation must do merchandise calculations and control them regularly.
8. Debt repayment
If your company is in debt, you must repay your creditors. In this situation, the debt that the trading corporation often pays is the debt for acquiring products, which is done on credit. As a result, it would be preferable to settle the loan by mutual agreement or before the due date.
9. Receivables receipt
Suppose a corporation or seller receives a settlement of receivables from a buyer to purchase products on credit. In that case, the settlement requires that all transactions and payments recorded in the books.
As explained above, that is the sort of transaction and accounting records that you must comprehend in a trading organization. In addition, all kinds of transactions should record in a solid accounting system so that you can quickly identify the money and costs that cut. These tasks will undoubtedly make doing trading firm transactions simpler for you.
Another vital aspect of every business is accounting since without it, growth would be more difficult. You may apply software like Hashmicro’s Accounting System to make financial reporting, bank reconciliations, revising journals, invoicing, and other tasks simpler.