What it means
When you trade futures or options, there are two steps: you open a position by buying or selling, and later you close it by doing the opposite. Each step is confirmed separately at the time, but the full picture only appears when the position is closed.
The purchase and sale statement pulls the two together into one clear record. The statement shows the number of contracts bought and sold, the prices at which the trades took place, and the gross profit or loss.
It then deducts commissions and fees to give the net result and shows how the customer's account balance and margin have changed. A futures commission merchant (a firm that handles futures trades for customers) normally issues it.
Businesses use these statements to check that their trades have been executed and booked correctly. A farmer hedging crop prices or an airline hedging fuel costs, for example, will compare the statement with its own records.
It also supports the accounting entries for gains and losses and provides evidence for tax returns. The term also has a broader everyday meaning, where "sales and purchases" simply refers to a business selling and buying goods.
In a bookkeeping context, a sales and purchase listing shows what a company has sold and bought over a period. The sense depends on whether you are in a trading or an accounting setting.
Always read the statement against your own trade records. Errors in quantity, price or fees do occur, and prompt reporting of any discrepancy is the best way to resolve it.
Tax treatment depends on the country and the type of instrument. Gains and losses on futures may be taxed differently from gains on shares, and some regimes treat open positions as if they were sold at the end of the year.
A statement that shows exact dates and amounts makes it much easier for an accountant to apply the correct rule.
In practice
Real-world examples.
Example
A grain merchant hedges against falling prices by selling futures and later buys them back as the crop is delivered. The statement shows a gross gain of $12,000 and net gain of $11,800 after fees.
Example
A trader closes a position in a stock index future and receives a statement showing a loss of $4,500. She uses it to reconcile her trading account and to record the loss in her books. Her accountant uses the same statement when preparing the year-end tax figures.
Example
A small manufacturer lists its sales and purchases for the quarter to prepare its sales tax return. The listing shows $300,000 of sales and $180,000 of purchases, so the gross margin before other costs is $120,000.
Formula
Calculation
Net profit or loss = (Sale price - Purchase price) x Contract size x Number of contracts - Commissions and fees.
Suppose a trader buys 2 contracts at $80 and later sells them at $83, where each contract covers 1,000 units. The gross gain is ($83 - $80) x 1,000 x 2 = $3 x 1,000 x 2 = $6,000. If total commissions and fees are $100, the net profit is $6,000 - $100 = $5,900. Futures also involve daily margin movements, but the final statement shows only the total result of the round trip, so the net figure matches the sum of the daily gains and losses.Case study
Seen in the real world.
Hollis Foods is an entirely fictional food company that hedges its wheat costs using futures contracts. In this illustrative story, the treasurer receives a purchase and sale statement after closing a hedge.
She notices that the sale price on the statement is lower than the price she recorded during the trade, which cost the company about $2,500. She raises the issue with the broker the same day and provides her trade notes.
The broker checks its records, confirms an error and corrects the account. The illustrative lesson is that statements should be checked promptly against your own records, because errors are easier to fix while the details are fresh. The company now checks each statement against the trade log within one business day and records the check on a short form.
Watch out
Common mistakes.
- Ignoring the statement, when it is the formal record of the result of a trade.
- Treating the gross gain as the profit, when commissions and fees must be deducted.
- Confusing it with a trade confirmation, which records a single opening or closing trade.
Questions
People also ask.
Who issues a purchase and sale statement?
A futures commission merchant or broker, when a position is closed or offset.
How is it different from a confirmation?
A confirmation records one trade, while the purchase and sale statement links the opening and closing trades and shows the result.
Why does it matter for accounting?
It provides the evidence for recording realised gains and losses and for tax reporting.
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