How to Prepare Trading Company Financial Statements

Rancakmeida.com – In order for a trading company to run smoothly, you must prepare the trading company's financial reports properly and correctly. For this reason, in the article below, we will provide complete information.

Financial reports are important for knowing the progress of a business or business each period. Business financial reports are a quick method of learning how well they are performing, whether they are turning a profit or not, and what the future holds.

Especially in trading companies, financial reports are also important to make it easier for business owners or interested parties to evaluate how the company's financial health is, which can then be taken into consideration in making choices for future plans.

In a large company size, the report is used as a reference by investors. Because the data provided reveals the financial health of the business.

About Trading Company Financial Statements

Financial statements company usually created at the end of each business period. However, regarding the time or period when the financial statements are published, it depends on the preferences of the business owner.

Some do it monthly, while others produce financial reports weekly. But what is clear is that every form of business will always need financial reports, including trading companies, of course.

About Trading Company Financial Statements

In a business enterprise, a trading company offers products to end users. In other words, these business firms sell tangible products, such as apparel, gadgets, cars and other forms of trade.

A trading company is one form of business that is easy to manage because based on its method, a trading company will acquire an item and then resell it without changing the essence and form of the product. Through this procedure, the trading company also receives a profit or profit.

So far, three product categories are available for sale:

  1. Raw materials in the form of unfinished goods
  2. Raw materials in the form of semi-finished goods. For example, groceries
  3. Finished goods

Every trading company, like any other type of company, is bound to provide financial reports. This is true for both small and large scale companies with tens of thousands of people, whose existence relies on the company's profit in selling its goods.

Types of Trading Company Financial Statements

The financial statements of trading companies are classified into various forms, which include income statements, balance sheets, cash flow statements, and changes in capital. Depending on the requirements of your trading company, each of these types of reports serves a specific purpose and provides different data.

Income statement

A trading company's financial statements are prepared within a certain time by calculating all income and deducting expenses, such as operational costs, depreciation costs, administrative costs and other costs that must be paid to obtain this income.

balance sheet

Reports created to determine the value of debits and credits in the company's finances.

Cash flow statement

Shows how much cash comes in and cash goes out so that these financial statements have an impact on topics related to investment or additional capital.

Cash flow statement

Statement of changes in capital

So, if your trading company experiences a change in capital, it is mandatory to submit a report on changes in capital to find out the amount of capital owned by the trading company at a certain time.

To determine the current and historical capital position of your trading company, you must prepare a statement of changes in capital at the end of each time period.

How to Prepare Trading Company Financial Statements

In order to produce the following financial statements, you need to know what information should be included in a trading company's financial statements.

Prepare Trial Balance

The first thing you might do is create a trial balance, which is also a list of ledger accounts with debit or credit balances from the company.

You can only make this trial balance if the accounting for all journals has been completed. The adjusted trial balance is the name given to the trial balance at the start of the process.

Make Adjusting Journal

For the purpose of allocating revenues and expenses to the periods in which they were actually incurred, adjusting entries are made intentionally.

This stage plays an important role in correcting certain transactions that have not been recorded so that discrepancies occur at the end of the period. When making these adjustment entries, be sure to include all original data.

Making financial reporting

In the next step, you can start preparing the three types of financial reports discussed at the beginning of this article: income statement, balance sheet, and statement of changes in capital. Because the nominal amounts to be reported on the balance sheet or income statement are previously separated, these financial statements can be prepared on the balance sheet. The financial reports you produce will be easier to understand as a result of this division.

Preparing a Worksheet

Making financial reports can be made easier by using a worksheet, as illustrated in the image above. The trial balance is the first step in creating a worksheet, and the adjusting diary is the second. The correct amount will be displayed in the trial balance column and will then be recorded in the balance sheet and income statement.

Account Adjustment and Closing

It's time to close this temporary nominal profit-loss account and transfer the profits to the undistributed profit-loss account after you've finished correcting the general ledger financial statements. Continue by entering information into the general ledger according to the account in question.

Prepare a closing trial balance

In the final step of preparing the trading company's financial statements, you will be asked to re-check the debit and credit balances on the accounts that are still open through the closing trial balance, but do not include the nominal that has been closed. The goal is to make it easier for you to compile a diary in the next period.

Inventory Report

Inventory reports are required in trading companies in addition to financial reports. This report is the only differentiator and has a very important function, because it includes assets owned by trading companies for sale in the ordinary course of business, or goods that will be used to create goods to be sold.

Merchandising and manufacturing companies have inventory reports, but service companies do not. However, these differences still exist, because trading companies only have product inventory, but manufacturing companies have three forms of inventory, namely raw material inventory, work-in-process inventory, and finished or ready-to-sell goods inventory.

Inventory reports play an important role in financial reports. The reason is, both the preparation of the income statement and balance sheet will not run smoothly without knowing the value of inventory. Inventory value issues will also result in errors on the income statement and balance sheet.

Beginning and ending inventory values have a significant impact on the cost of goods sold (HPP) of goods when calculating profit or loss. Inventory accounting in trading companies requires this report because inventory is an expense that must be matched to revenue to generate revenue for the cash flow statement view.

Generally, merchandising companies prefer to sell finished products which are reported as stock items or included in the accounts receivable report. This is due to the fact that cash realization is simpler, and the potential reward from collecting receivables may more than offset the risk.

For example, you offer finished goods in the form of ready-made clothes. You also keep a supply of these clothes on hand to meet client requests. As a result, you should keep track of these clothes as inventory. However, when you decide to sell it on credit, you must record it as receivable.

The reason is, receivables are company bills to consumers or clients due to the sale of goods on credit. You can now more easily monitor your cash flow to find possible sources of income and profit thanks to automatic record keeping.

The preparation of the financial statements of a trading company will certainly require quite a lot of time and effort. For accurate financial reporting, you also need a top-level accountant's report.

One of the reasons is that any fatal error will result in a loss, whether monetary or otherwise. Accounting software allows you to generate financial reports for your company quickly, correctly, and effectively, all without the need to hire multiple accountants.

Benefits of Financial Reports for Trading Companies

In the Journal, you may see a company finance dashboard to give you comprehensive control over your business. It is possible to get real-time profit margins up to A/R receivables at any time.

This dashboard makes it easy to learn about a company's financial health. The company's cash management in the Journal also provides real-time transaction profit and loss reports in the company's financial journal.

Benefits of Financial Reports for Trading Companies

Some of the advantages of financial reports are as follows:

Evidence of Accountability

One of the main advantages of financial reports is that they can be used to prove who controls all the operations of a company, especially in operations that require finance or transactions. With this evidence, there will be no misunderstanding by any party in the company.

Evidence of this transaction can be in the form of receipts, notes, invoices or invoices and other forms that show company activities. However large or small the expenditure incurred, it must be documented in the trading company's financial statements so that the amount is correct and there are no excesses or deficiencies.

In addition, the company's purchase of goods is influenced by the financial statements of this trading company. If it is known that company A has a high price, your company can decide whether to continue the partnership or just quit and look for alternative business partners.

To Get Capital Loans

In order for a company to obtain a capital loan from a bank or other creditor, it must fulfill several conditions, one of which is the submission of financial reports in accordance with accounting. As an added benefit, companies seeking public funding through capital markets benefit from well-organized reports.

This is because the value of a company can be reflected in its financial statements if the company is a well-managed trading company. Creditors are only interested in investing in companies with a promising future and large profit potential

For Introspection of Activities

In order to maintain the continuity of the company and better progress, introspection is very important in carrying out operations. To advance and grow your company, you need to do some self-examination and identify areas that may need improvement.

One of the company's introspection tools can be seen from its financial reports. The amount of money that the company has spent on various activities is detailed in the report itself. Detailed attention to detail is required when preparing financial statements.

Financial reports must also be informative so that the company understands if its business is growing or deteriorating. If there is waste in the company, the company must start planning for budget cuts and hunting for suppliers with lower costs.

Business Evaluation and New Plans

After an operational introspection, the company must also analyze its business and set new goals. How to make monthly, quarterly and annual financial reports that can be used for review.

Companies can carry out initial assessments with the help of this report. The division responsible for financial management can also come up with new ideas to help grow the business, especially in the field of product marketing.

Can Be Used As A Reference For Calculating Taxes

Every business is expected to pay taxes to the government, especially for large trading companies. Through the financial statements of trading companies, it will be easier for the government to calculate the amount of tax to be paid.

If the company pays taxes according to regulations, the company will gain the trust of the government to run its business.

Can Be Used As A Reference For Calculating Taxes

FAQs

Below we have summarized some frequently asked questions about financial statements, as follows:

When Should Financial Reports Be Made?

In general, this report is made to explain the company's financial condition in a certain period. Therefore, most of the reports are done at the end of the year or the end of the month, according to the provisions of the company.

Conclusion

Report finance It is important to know the progress of a business or company every period. In a large company size, the report is used as a reference by investors.

The data provided reveals the financial health of the business and how well it is performing in terms of generating profits. You should know what information to include in the financial statements of a trading company.

There are three types of financial reports that you can create: income statement, balance sheet, and statement of changes in capital. Prepare a trial balance and make modified entries for each report.

Back to top button
RANCAK MEDIA