Hi Friend KH, did you know that in the business world, there are various categories of companies such as trading companies and companies in the service sector. It turns out that both have significant differences, you know. Before that, KH pals need to understand the definition of both first. Based on the Accurate website, a trading company is a business that sells goods or products. For example, food producers, textile producers, retail companies and many more. While service companies have a different form of business, it is because the products traded are not goods, but services provided to their customers. For example, law firms, accountants, salons, expeditions and others. As a reliable businessman, it is important to understand the differences between trading companies and service companies. This is part of the basic concepts of entrepreneurship that can certainly make it easier for you to run a business. The main difference between trading companies and service companies is that trading companies need to keep inventory, while businesses in the service sector do not. This becomes important when preparing to manage accounting for business. Want to know more about the differences and definitions and differences between service and trading companies? Here are 10 differences:
1. Management of Products Offered
A significant difference between the two is the products offered. For trading companies, business owners must prepare a budget that aims to manage the goods sold. One form of activity in management is storage. This does not apply to service companies that do not require storage facilities for their products. That’s because the products offered are in the form of services for customers. Therefore, not a few trading companies depend on the quality of the goods being traded. Also, keep in mind that a good storage facility requires a large amount of funds, in order to sustain a business.
2. Profit and Loss Statement
Profit and loss statements are needed to show the financial performance of a company. This second difference can be seen through the company’s balance sheet. Both trading and service companies have differences in making profit and loss statements. As inventory is the largest percentage of the asset category of trading companies, they tend to have less cash than service companies. That’s because a trading company’s capital is tied up in illiquid assets, whereas a service company’s assets are generally weighted towards receivables. For service companies, the absence of inventory means receivables are a larger proportion of total assets. Both can gain or lose from non-operational sources. However, the sources of profit or loss for these two types of businesses are different.
3. Business Recording
Recording transactions on the purchase and sale of inventory items is mandatory. From these activities will determine whether the company makes a profit or not. So that the stages in the accounting cycle process act as guidelines in calculating company profits. For service companies make records based on the services provided. Determination of service rates is determined in various ways, such as for expedition companies, service rates are calculated from the distance traveled by couriers when sending customer goods. Another example is a company that provides house cleaning and sterilization services. The rate is determined from the type of furniture cleaned, the size of the house, and the duration needed to do the work.
4. Stock Inventory
The activity of trading companies is to sell goods or products, so they definitely need a stock of goods being traded. On the other hand, service companies do not have stock. Therefore, this type of company does not need stock inventory.
5. Production and Consumption Process
Trading companies can store goods or products before distribution to customers. While service companies do not apply otherwise. They do not have physical goods or products, so they cannot store them before distribution or until the consumption stage.
6. Cost of Goods Sold (COGS)
For trading companies having COGS is very useful, to calculate the profit that the company will earn. However, the existence of COGS requires an COGS report to record the movement of costs around the goods produced. For service companies that do not have COGS, they do not need cost accounting in it.
7. Returns
This return is an easy difference to recognize or realize. In a trading company, goods or products that have been purchased still have the possibility of being returned or returned. Unlike a service company, if you have purchased a service, it cannot be returned or returned.
8. Quality of Goods or Services
The quality of goods from trading companies can be known directly by buyers at the same time when making transactions. But it is different from the quality of services from service companies that can be known or felt after consumers buy the services provided.
9. Official Price Benchmark
Trading companies tend to have an official price benchmark for goods or products that apply in the market. In contrast to service companies that do not have an official benchmark price that applies in the market, because what is offered is a service or service.
10. Merchandise Inventory Account
The trade goods inventory account is part of the company’s current assets which this inventory account will not be found in service companies. This is because service companies do not require recording goods for the benefits of their services. Then what about trading companies? Of course, it requires a trade inventory account because the company sells goods or products. In addition, inventory for trading companies is part of the company’s current assets which will not be found in service companies, because service companies only record customer needs to be completed in accordance with the agreement.
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Those are 10 differences that KH friends can understand related to trading companies and service companies. If you are planning to build a business, from these differences you can think about what type of business is suitable for you and is able to provide benefits in the future. Both trading and service companies have their own advantages and disadvantages. For that, KH pals need to know what will be a challenge and be able to turn it into an advantage in managing the business later. Despite the differences, trading companies and service companies have similarities, namely both may employ employees, require equipment to run the business, and both types of business structures have customers who pay for goods or services.
KH Contact
Thus the discussion related to the difference between trading companies and service companies. For KH Pals who still have questions about trading companies and also service companies, or need legal and business services ranging from the establishment of PT, brands, and other business questions can contact Kontrak Hukum. Immediately contact us at the following link Tanya KH, and for more information related to the establishment and processing of trade business licenses KH pals can visit the website of Kontrak Hukum https://kontrakhukum.com/pendirian-badan/, or can visit the latest information about business on social media Instagram @kontrakhukum.
