Definition of a Trading Company’s Financial Position Report and How to Prepare It

As a business person, of course you need to make financial reports to monitor the development of your business, so you can find out the condition of the business that is being run, whether it is experiencing losses or gaining profits, as well as future business prospects. Especially as a trading company, this financial report is very important to make decisions on the next plan.

Have you often heard the term Trading Company, but until now have not known the official meaning? A trading company is a company engaged in the trading of goods or the main activity in the company is the sale of goods.

Generally, trading companies will sell the products they sell without any changes to the products being sold. What is meant by product change is to change the goods, either from the form or value of the goods themselves. So basically the trading company only buys goods or products and immediately sells them again at a higher price. From this price difference, the trading companies make a profit.

Trading Company Financial Position Report

The statement of financial position is a report relating to the financial position of a company and is systematic, every company, whether trading, service, or manufacturing company uses this financial report. The statement of financial position is also referred to as a balance sheet or balance sheet.

The report relates to the condition of the company’s assets or assets consisting of cash, prepaid expenses, receivables, and fixed assets. In addition, the statement of financial position is also related to the equity or capital of the entity used for company activities, as well as liabilities or obligations that are borne by the company.

A trading company is a type of entity that is focused on trading, such as a mineral water company, or other companies that sell their products to consumers. In this trading company, there are main components on the balance sheet of the trading company, namely:

Asset

Assets in this trading company are divided into two, namely current assets and non-current assets. Current assets include receivables, cash and cash equivalents, VAT inventory, and others. As for non-current assets, for example, such as deferred expenses, fixed assets, investments in other entities, and others.

Equity

When you make a statement of financial position for a trading company, this equity section consists of share capital, retained earnings, and additional paid-in capital.

Liability

Liabilities to trading companies are also divided into two, namely short-term liabilities consisting of tax payables, short-term bank loans, long-term debt expenses, actual expenses, consumer financing debts, and bonds payable. Meanwhile, long-term liabilities consist of deferred income, long-term debt, finance lease payable, and employee benefits.

In preparing the statement of financial position for the trading company, you need to add up the constituents of the main components, resulting in a statement of financial position consisting of total current assets, total non-current assets and the total amount of these assets.

Then there is also the number of short-term liabilities, the number of long-term liabilities, and the total amount of liabilities, then the amount of equity. And finally, you need to add up the liabilities with the equity.

So in the preparation of the statement of financial position of the trading company, the total asset value must be equal to the sum of the liabilities and equity, this is because the formula for the statement of financial position is Assets = Liabilities + Equity.

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EXAMPLE OF A TRADING COMPANY CASH FLOW STATEMENT

A cash flow statement is a report that presents a summary of the company’s income and expenses for a certain period. The cash flow statement consists of three types of activity groups, namely:

Operating Activities
Investment Activities
Financing or Funding Activities
Operational Activities it includes transactions related to the company’s operational activities. These transaction activities can be found on the income statement, namely sales, cost of goods sold, and company operating expenses.

Then investment activities consist of transactions related to the purchase and sale of fixed assets.

Meanwhile, funding activities contain transaction information related to the company’s liabilities and capital. For example, paying debts, increasing funds for capital, and selling company securities. There are two types of cash flow statements, namely:

1. Statement of Cash Flows Direct Method (Direct Method)

Cash flow statement direct method is a way of preparing cash flow statements by calculating cash flows directly from operating activity components according to the company’s income and expenditure records. Below is an example of a direct method cash flow statement from the trading industry.

2. Cash Flow Statement Indirect Method (Indirect Method)

This method is a way of compiling a cash flow statement based on the company’s operating activities calculated from the income statement after adjusting for depreciation and amortization.

In making the direct method cash flow statement, the data used are sourced from:

Previous period balance sheet
Current year balance
Income statement

So in making a report we should not be careless, because there are procedures in writing it. In addition to the procedures, there are also several methods of making financial statements for trading companies that we must pay close attention to.

Because the financial statements of this trading company are very vital in nature because it determines whether the company over a certain period of time produces long or even loses.

Trading Company Accounts in Financial Statements

Trading companies, especially in financial statements, usually have several different accounts with non-trading companies, so recording these accounts will be useful to find out whether sales are growing or not. This account consists of:

1. Purchase Account
This purchase account is used to record every transaction on the purchase of goods made in cash or on credit.

2. Purchase Discount Account
The purchase discount account has a function to provide a record of the discount at the beginning of the transaction by the seller of the goods and the amount of this purchase discount is determined by the seller.

3. Purchase return account
This account has a function to record the return of purchased and damaged merchandise that must be returned.

4. Purchase freight account
This next account has a function to record the amount of account expenses that are borne by the trading company.

5. Sales freight account
There is also a sales freight expense account that is used to record the cost of paying for goods that have been sold.

That’s the information we can convey about trading companies along with examples of financial statements, both from the income statement, balance sheet, cash flow statement and others. Hopefully this article can help you build and develop a trading company better.