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Wholesale trade. Accounting, taxes, other questions

What is wholesale trade?

According to part 6 of article 30 of "The law on taxes and duties" wholesale trade is the sale of goods on one's (seller) own behalf to persons conducting economic activities (JSC, LLC, IC, as well as individuals who have registered with the SRS) for further sale, production or support of their activities. Wholesale buyers usually use the goods:
  • For further resale. For example, for retail sales to the end user (for individual household consumption).
  • To produce (manufacture) another goods.
  • For maintenance (repair) of fixed assets.
  • To support (ensure) own business activities.

Usually, parties concludes an agreement, which specifies the goods sold, quality requirements, sales volumes, price of goods, delivery conditions, etc.

In the same room (commercial space) you can sell goods in both wholesale and retail trade.

The enterprise can also be engaged in mediation in wholesale trade. For example:
  • agrees with the manufacturer of goods on the terms of purchase of goods;
  • agrees with the next buyer of goods on the terms of sale of goods;
  • agrees with the carrier to transport the goods from the manufacturer to warehouse of the enterprise or to deliver goods directly to the next buyer;
  • organizes and controls the process in which goods (products) from the manufacturer are delivered to the next buyer.
Thus it is possible to reduce costs (the maintenance of the warehouse, the storage / preservation of goods, salaries of employees). But there is a high probability of occurrence of unexpected situations. For example, the manufacturer does not produce the required volume, or does not produce within the specified time, the carrier does not deliver the goods within the specified time, the buyer refuses to purchase.

Turnover of goods and documents.

Possible turnover of documents between the seller and the buyer:
  • If the buyer pays an advance payment (prepayment):
    • The seller issues an advance invoice (an invoice for prepayment) and sends the invoice to the buyer.
    • The buyer pays the advance invoice by wire transfer (non-cash payment).
    • The seller receives the payment and informs the buyer about the time when it is possible to receive the goods.
    • The buyer arrives to receive the goods. An employee of the seller, before giving the goods to the buyer, prepares an invoice. Representatives of the buyer and seller sign the invoice, confirming the transfer (sale) and receipt of the goods.
  • If the buyer pays in installments (after receiving the goods):
    • The parties confirm the sale (delivery and receipt) of the goods by signing the invoice (tax invoice).
    • The buyer pays the seller for the goods within the agreed period (term).
In both cases, the seller and the buyer must register the invoice in the appropriate register of documents. The seller registers invoices on the same day when the invoice is issued (on the day of delivery / transfer of the goods). All invoices must register in chronological order (by date). Such register of invoices must be located in each place of issue of goods (in each warehouse).

There may be a situation when after a sale, the buyer and the seller agree to reduce the price of goods, as well as a situation when the buyer returns the goods (or part of the goods) to the seller.

If the seller reduces the price of the goods sold (the seller does not receive the goods back), then the seller issues a credit note to the buyer. In the credit note, the seller writes (indicates) for which goods and by what amount the price is reduced. The seller should also need a document that can justify the price reduction (in case of examination, the State revenue service (SRS) may require the seller to justify the price reduction). Would need some kind of agreement with buyer. And in the agreement need to write basis for price reduction.
If the buyer returns the goods back to the seller, then the buyer issues the corresponding invoice. The buyer delivers, sends (returns) the goods back to the seller. The seller receives the returned goods and the parties sign the corresponding invoice. The seller registers the signed invoice in the special register of documents.

There may be a situation when an enterprise has several warehouses (wholesale locations; structural divisions) and goods from one warehouse need to transport to another warehouse. In this case, the enterprise need to issue an internal invoice (transport document). And on the basis of this document, the warehouse employees register movement of goods, and an accountant makes accounting entries.

Must keep in mind that invoices and sales documents must meet certain requirements (for example, the document must contain Latvian language, must contain certain details, also there are certain requirements for numbering of documents.

Warehouse bookkeeping (inventory control).

Company must do warehouse bookkeeping in a way that gives possibility to track the movement of each unit of goods. Need to ensure the following:
  • By selecting (pointing to) any product in the warehouse, you could show a document that confirms the purchase of this product.
  • By pointing to any product in any sales invoice, you can show a document (purchase invoice) confirming the purchase of this product.
  • By pointing to any item in any purchase document (invoice), you can determine whether the item was sold and if the item was sold, then you can show the corresponding sales invoice.
Need to take into account, that in the case of the tax authority control, the tax authority may require the above written and the enterprise must be able to show and prove the movement of goods.
It is also necessary to be able to prove with documents who transported the goods (the buyer or another (transport) company). Documents could be, for example, an invoice from the carrier, a document about the transfer of cargo to the carrier, CMR, etc.

Proper warehouse bookkeeping would be useful for the enterprise itself. Because:
  • You can control what products and in what volume (quantity) are in stock (reduce product losses, possible theft).
  • You can more accurately determine how much and when to purchase products. This will also help you forecast your cash flow more accurately.
  • It would be possible to know quite accurately the quantity (volume) of necessary products (goods) in warehouse. For example, a potential customer makes an order for certain products in a certain quantity (volume). The seller, using the warehouse bookkeeping program, checks the balance of the ordered product (whether the required volume of the ordered product is available). It may be possible, that some items of the products are already reserved for sale to another buyer. If necessary, you get to know if it is possible to purchase the ordered products. Then you inform the buyer about the possibility to sell the ordered volume of goods.
  • It is possible to prepare various internal reports on the movement of goods for the company's management.
Managing warehouse bookkeeping (by groups and types of products), you can assign codes to products and track them by codes rather than by names. Because may be situation that on the purchase invoice certain product is named by one name (for example, in English, Russian, etc.), but on the sales invoice the product is named differently. It may also be possible that from several purchased products you complete (create) a new product, which name is completely different.

At least once a year you need to carry out an inventory of goods. The procedure for conducting inventory is set out in "Rules on maintaining and organizing accounting".

What documents should be located in the warehouse (the place of wholesale trade)?

In general in the warehouse you should have:
  • Purchase invoices (documents confirming the purchase of goods in stock).
  • Sale invoices.
  • If goods are moved between warehouses of the enterprise, then also need internal invoices for movement (transportation).
  • The register of invoices (the journal of registration of invoices).
  • Warehouse bookkeeping register (the journal, where you record/registers the movement of each unit of goods).

At what prices need to record (valuate) the products in stock?

In warehouse you should register goods (products) at the purchase price (cost price, acquisition cost). The cost of goods includes:
  • The purchase price of the goods (the price indicated on the purchase invoice).
  • Transport expenses incurred due to the receipt of the goods.
  • Duties, taxes, intermediary services, and other expenses that are directly related to the purchase of the goods in warehouse.

Recording of the sale of goods in financial accounting.

Usually sales amounts an accountant distributes according to the applicable VAT rates. For example, in separate accounts should record (register):
  • transactions subject to VAT 21% rate,
  • sale (and delivery) of goods to another country of the European Union (EU), to VAT payer of another EU country,
  • export.

Forms of payments.

Usually, the buyer of goods pays by wire transfer (transfer from the account of a credit institution or an institution that provides payment services). The buyer may also arrive to the seller and pay with a payment card (if the seller accepts such type of payment).

In general cash payments are not allowed. Exception, if the seller of goods previously informs the SRS about cash payments and keeps a register of buyers of goods. You should take into account the conditions associated with the restriction on the use of cash, as well as requirements for electronic cash registers. But it is advisable to avoid cash transactions.

Additional requirements, related with the trade certain products.

Keep in mind that you need a license to trade certain products.
For example, for the sale of certain chemicals (products).
Additional requirements may also be applied for the food trade. For example, if you plan to sell quick-frozen food. Selling food you also need to comply with the requirements of the Law On the Supervision of the Handling of Food and requirements of regulations of the Cabinet of ministers (for example, requirements for premises, vehicles, hygiene).

What activities are usually performed by an external (outsource) accountant?

Periodically (once a month or more often), the external accountant receives information (documents) about transactions:
  • Invoices for the sale of goods.
  • Invoices for the purchase of goods.
  • Invoices for received services.
  • Other documents about expenses (electronic cash register checks, cash receipts).
  • Statement about bank or payment institution transactions (bank statement).
  • Warehouse bookkeeping data.
  • Other information about economic activities.

Based on the above-mentioned documents and information, the accountant:
  • Checks (examines) the documents and records the transactions / events in the accounting ledgers. Calculates the wages (the payment for vacation, etc.).
  • Maintains records of debtors( buyers) and creditors (sellers), that is, links invoices with payments, thus determining which buyer did not pay for the goods, which buyer overpaid (or has an unused advance). If necessary, informs the company's management about settlements with transactions partners.
  • Calculates taxes. The usual taxes are value added tax and payroll taxes (personal income tax, mandatory payments of state social insurance, as well as state duty on business activity).
  • Prepares (and submits) tax reports and declarations. In general, it is necessary to prepare and submit an "Employer's report" (a report on wages and taxes), a value added tax declaration, and information about the "movement" of employees (information about the beginning or termination of employment relations). There may also be an obligation to submit a report on the calculation of the tax on natural resources.
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