Commission trading is a fairly common type of entrepreneurial activity. It has several advantages, but there are important nuances. We will talk about this in the article. Also we will understand what is a principal, principal, what is the difference between them.
What is commission trading?
You can trade in different ways. You can produce goods, and then sell them to the final consumer. You can act as an intermediary, that is, to buy goods from a supplier, and then resell them to a retail buyer. And you can sell what does not belong to you.
The essence of commission trading is that a certain company performs operations on its own behalf, but at the expense of the counterparty. It is important that the right of ownership of the goods to the seller is not transferred. Concepts such as agent, principal, commission agent, principal arise. At the same time, the seller company calls itself a commission agent, and the company that transfers the goods for sale is called the principal.
For his services, the commission agent receives a commission in the form of a percentage or amount established by the contract. The costs associated with the execution of the order shall be compensated by the principal. All these nuances are reflected in a special way in accounting, specific accounts and postings are used, primary documents are also drawn up differently than with traditional trade.
Commission agreement and agency agreement
The essence of the contract is that one party for a fee concludes transactions with third parties on its own behalf, but acts in the interests of the other party. For the work done receives the agreed remuneration.
Such an agreement refers to an intermediary. That is, the commission agent (agent) enters into an agreement with the principal (principal) for the sale of goods. Allocate an agency agreement and an assignment agreement. What is the difference between them?
In the commission agreement, the commission agent acts on his own behalf. In the contract of commission, the attorney acts not on his behalf, but on behalf of the principal.
The difference from the agency agreement is that the agent performs both legal and actual actions, and the commission agent performs only legal ones.
What does “principal”, “principal” mean?
So, in the framework of intermediary contracts, the party initiating contractual relations is called. The concept, it seems, is one, but the names are different. Does this mean that the concepts are identical? Principal, principal - who is it?
A principal is a person who orders to perform any actions for a fee. A principal is a person who authorizes a second person to act as an agent. The concepts are close. Agent and principal appear in the agency agreement. The principal and commission agent are in the commission agreement. Therefore, the principal (principal) - who is it? This is a person who initiates relations, instructing to perform certain tasks for a fee.
Is it possible to say that the principal and principal are one and the same? Despite the fact that the concepts are close in meaning, it cannot be said that they are identical. They appear in different treaties. This means that there is a difference between the concepts of principal and principal.
The principal may instruct the agent to act both on his own behalf and on behalf of the principal. The principal may instruct the commission agent to act only on its own behalf. We can say that the principal and principal are the same thing, only under certain conditions. In general, the second concept is somewhat wider.
What does "agent", "agent" mean?
Let's look at the second side of the contractual relationship. An agent can act both on its own behalf, then the contract will be similar to the model of the commission contract, and the concepts of agent and commission agent will become identical, and on behalf of the principal, then the concepts of agent and commission agent can no longer be identical. We can say that the concept of “agent” is broader than the concept of “commission agent” and includes it. Now it should be clearer what a principal (principal) is and what a commission agent (agent) is.
Commission trading advantages
The first tangible plus is that the commission item does not need to be paid. It is given for implementation and is in custody. The transfer of revenue for the goods sold occurs only at the moment when this revenue actually arrived.
Thanks to this advantage, it is easier to start a new business, you do not need large amounts for the initial investment. After all, what is a principal (principal)? This is a person who provides his goods for trade.
The next advantage is the ease of return processing. If it is discovered that the product is defective, the time period for its sale has expired, or for some reason “hasn’t gone,” then it’s easy to return it, because it belongs not to you, but to the client. In classical trade, the return of goods creates many difficulties, ranging from paperwork to taxation. As part of the commission agreement, subcommission agreements can be concluded.
Also considerable advantages are that the accounting and taxation of the intermediary is much simpler than that of the one who sells their own goods.
Payment Methods
Commission trading provides for two possible options. The commission agent may take part in settlements for goods between the principal and the buyer, and may not accept.
If a scheme is chosen without the participation of a commission agent in the calculations, then payment from the final buyer goes directly to the account of the principal, bypassing the intermediary. The commission agent only receives his remuneration based on the results of the work.
The scheme with participation in the calculations implies that buyers pay for the goods with the commission agent, and then the accumulated amounts are transferred to the account of the principal. In this case, the commission agent has the opportunity to independently keep the amount of his remuneration, as well as to compensate for expenses incurred during the execution of the order.
Accounting
Keeping records of commission trading is easier. All incoming goods are reflected on the off-balance account 004. All movements on the goods are also reflected on the off-balance account.
The accounting records reflect only the amount of the commission, they are part of the income of the commission agent. To reflect them, account 62 is used in correspondence with account 90. If the company is a VAT payer, it must also be distinguished. The structure of expenses includes those expenses that the company incurred in the process of execution of the order.
If the agent is not involved in the calculations, then his accounting is even simpler. If involved, then the received and transferred amounts must be displayed using account 76.
If the company trades not only commission, but also its own goods, accounting for these operations should be kept separately.
The commission agent writes out documents for the sale of goods to customers on his behalf. The commission agent has the right to use any taxation system, both classical and simplified.
Source documents
Goods are transferred under the act of acceptance of goods. Information about the goods sold is transmitted in the form of a commission agent report. A fee must be drawn up for the provision of services and an invoice issued.
In the rest, the commission agent uses standard, unified forms of primary documents.
The commission agent may deduct a commission from the amount received to him for the goods sold. There is another option. The principal himself transfers the commission in the terms established by the contract. Taxes are paid only on commission fees.
Agent Report
The commission agent is obliged to regularly report to the principal (principal) on the sold product. The deadlines for submitting the report are not legislatively fixed, but they are prescribed in the contract. If the volume of goods is large, it is convenient to report monthly, in addition, the principal is interested in monthly reports in order to timely and correctly calculate VAT. If the principal is not a VAT payer, any period for reporting may be set.
The report form can be developed independently or use a ready-made one, for example, from the Internet.
At first glance, mediation contracts may seem a bit confusing. Many actors: agent, principal, principal, commission agent, buyers. But if you look, it turns out that working under a mediation agreement is much easier and more convenient, keeping records is easier, and there are many more advantages than disadvantages. This explains the popularity of this type of entrepreneurial activity. Now you understand what a principal, a principal is, and you will no longer confuse these concepts with each other.