Consignment Accounting

By: Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.
 Consignment Accounting

Meaning of consignment
 a batch of goods destined for or delivered to someone.
 "consign" means "to send"

Consignment means the transaction of sending goods by one person to another, who is
to sell goods on behalf of the first person.

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting
1. Consignor

 The owner of the goods who sends the goods to an agent for sale.
 The person who sends the goods is known as consignor

2. Consignee
 Who sells the goods for the consignor.
 Sells the goods and collects the money from the customers.
 Will pay the consignor the net proceeds (Proceeds – Expenses – Commission) and
provide the consignor an account sales showing all the proceeds and expenses.

3. Goods sent on consignment

 Goods sent on consignment are the property of the consignor until the goods are sold.
 The consignor should include all the unsold goods on consignment in his closing stock.

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting
Consignment
Consignor Consignee

• Owner of the goods and also • Is the seller of the goods and
called as principal also called as agent

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting

Different types of commission given to consignee under consignment

Such commission is paid in lieu of services rendered by the consignee in the form of selling the
goods. Theoretically, there are three types of commission:

 Normal (Ordinary) commission:

 Normal commission is the fixed % of commission paid by the consignor to the consignee
 calculated on the total sales made by the consignee.

 Del Credere Commission:

 It is a special commission given by the consignor to the consignee.

 Generally consignee is not allowed to sale goods on credit basis.
 If he is allowed to sell goods on credit he is held responsible to collect money from debtors
 When this commission is paid, the consignee has to bear the loss of bad debts

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting
 Overriding Commission:

 Commission given to the consignee in addition to the normal commission

 Purpose of such incentive is to motivate the consignee to create market for new products.
 Sometimes, this additional commission is allowed to consignee where certain sales limits have
been exceeded.
 Given to make the consignee sell the goods at higher prices. It is paid as per the agreement and on
the excess price.

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting

Pro-forma invoice
A Pro-forma invoice is a document prepared by the consignor which is
sent to the consignee along with the goods. It contains the details with
respect to the quantity of goods sent, rates at which the goods are sent
and other terms and conditions for sending the goods on consignment.

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting

Account sale

• Account Sales. An Account sale is a statement prepared and sent by the

consignee to the consignor. It contains the details with regard to the quantity of
goods received, sales made, expenses incurred, commission, amount sent and the
balance payable by consignee to the consignor.

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting

Format of Account sale

Account sale statement of ……..

Particular Amount
Sales xxxxx
Less: Expenses xxx
Commission Xxx
XXXXX
Less: Advance if any Xxx
Balance due and enclosed draft XXXXX

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting

Difference

PROFORMA INVOICE ACCOUNT SALE

• It is prepared by the consignor and • Account sales is a report or

send along with the goods send on statement that shows the price at
consignment The instrument contains which the goods are sold, expenses
a description of goods, i.e. quantity, incurred by the consignee on behalf
price, weight, kind and other of the consignor, consignee's
specifications. It is a declaration by commission and the net balance for
the seller to provide the products and which the consignee is liable.
services to the buyer on the specified
date and price.

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting
Distinction Between Consignment And Sale
No. Consignment Sale
1 Consignment occurs between a consignor and a consignee Sale occurs between a seller and a buyer
2. The consignee is the agent of the consignor who is principal The buyer deals with seller as principal to principal
3. Consignor sends a pro-forma invoice to the consignee Seller sends a regular invoice to the buyer
4. Ownership of goods remains with the consignor Ownership of good is transferred to buyer
5. Consignee obtains goods for earning commission Buyer obtains goods for own use or resale
6. Consignee is liable to pay to consignor only price of goods Buyer is liable to pay to seller price of all goods
sold, not of all goods received received
7. Profit or loss on sale belongs to the consignor Profit or loss on further sale belongs to the buyer
8. Risk of loss/damage is borne by consignor Risk of loss/damage is borne by buyer
9. Consignee can return the unsold goods to the consignor Buyer cannot return unsold goods to the seller
10. Consignor can recover goods from the consignee for non- Seller cannot recover goods from buyer for non-
payment payment

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting

Accounting Treatment : Journal Entries

Transactions In the Books of Consignor In the Books of Consignee

Goods sent on consignment Consignment A/c Dr. No Entry

To Goods Sent of Consignment
For expenses incurred by Consignment A/c Dr. No Entry
consignor To Bank A/c
For the advance paid by the Bank/ Bill Receivable A/c Dr. Consignor A/c Dr.
consignee To Consignee A/c To Bank/ Bills payable
When consignor get the bills Bank A/c Dr. No Entry
discounted with the bank Discount A/c Dr.
To Bills Receivable A/c
For the expenses incurred by the Consignment A/c Dr. Consignor A/c Dr.
consignee To Consignee A/c To Bank A/c
For the sales made by consignee Consignee Consignment Debtors A/c Dr. Bank A/c Dr.
To Consignment A/c To Consignor
For the commission payable to Consignment A/c Dr. Consignor A/c Dr.
the consignee To Consignee A/c To Commission a/c
Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.
 Consignment Accounting

Transcations In the books of consignor In the books of consignee

For consignment stock (unsold stock) Consignment A/c Dr. No Entry
To Consignment A/c
For profit on consignment Consignment A/c Dr. No Entry
To Profit & Loss A/c
For loss on consignment Profit & Loss A/c Dr. No Entry
To Consignment A/c
For abnormal loss Abnormal loss A/c Dr. No Entry
To Consignment A/c
For removing loading in invoice price when the Goods Sent on Consignment A/c Dr. No Entry
goods sent on invoice price To Consignment A/c

For removing loading in consignment stock Consignment A/c Dr. No Entry

To Consignment Sock Reserve A/c
For del credere commission given by consignor- No Entry Bad Debt A/c Dr.
----bad debts borne by consignee To Commission A/c
For del credere commission not paid by the Bad Debts A/c Dr. No Entry
consignor loss of bad debts borne by consignor To Consignment Debtor’s A/c

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting
Valuation of Consignment Closing / Unsold Stock
Particulars Amount
Method I: Value of unsold stock ( unsold units* price per unit) XXX

Add: proportionate direct/non recurring expenses of consignor XXX

XXXX

Add: proportionate direct/non recurring expenses of consignee XXX

Value of Closing / Unsold stock XXX

Quantity in Stock
Method II : Value of Closing / Unsold Stock = Cost of Goods Sent X
Quantity Sent

Note: (Direct &Non-Recurring)

1) All the expenses incurred by consignor are included in direct expenses
2) In case of consignee till the goods reached to the godown of consignee the expenses incurred are direct. Rest will be Indirect

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting

Special items treatment:

 Abnormal loss:

This type of loss is an avoidable loss because it does not arise due to the nature of the goods. Such loss may
arise due to hard luck of consignor (i.e. destruction of goods by fire, an accident or theft). Such losses are more
or less abnormal and, in any case, do not occur frequently.
Note: calculation of abnormal loss is similar to that of consignment stock

 Invoice price: when the goods are sent to consignee at a price higher than the cost price ,it is termed as
invoice price. (Cost Price + Profit)

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting

Ledger’s to be Maintained Under Consignment Accounting

In the books of consignor

 Consignment a/c ( Nature of a/c: Nominal account)
 Consignee a/c ( Nature of a/c: Personal account)
 Goods sent on consignment a/c ( Nature of a/c: Real account)

In the books of consignee

 Consignor a/c ( Nature of a/c: Personal account)

 Commission a/c ( Nature of a/c: Nominal account)

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 In the books of consignor
Consignment Account
Particulars Amount Particulars Amount
To Goods sent on Consignment A/c XXX By Consignee A/c (Sales) XXX
To Cash/Bank (Consignor’s Expenses) XXX By Consignee A/c ( Cr. Sales) XXX
To Consignee A/c (expenses) XXX By Goods sent on Consignment A/c XXX
(Returned)
To Consignee A/c (Comm.) XXX By Consignee (Goods taken) XXX

To Consignee A/c (Del Cr. Comm.) XXX By Stock on Consignment A/c XXX

To Consignee A/c (Bad Debts) XXX

To Bills Receivable A/c (Discount) XXX
To profit and loss A/c (profit) XXX By Profit and Loss A/c (loss) XXX
XXX XXX

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting
Consignee’s Account
Particulars Amount Particulars Amount
To Consignment A/c (Sales) XXX By Cash/Bank A/c (Advance) XXX
To Consignment A/c ( Cr. Sales) XXX By Bills Receivable A/c (Advance) XXX
To Consignment (Goods taken) XXX By Consignment A/c (expenses) XXX

By Consignment A/c (Comm.) XXX

By Consignment A/c (Del Cr. Comm.) XXX

By Consignment A/c (Bad Debts) XXX

By Cash/Bank A/c (Remittance) XXX

By Bills Receivable A/c (Remittance) XXX

By Balance c/d XXX

XXX XXX

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting

Goods sent on Consignment Account

Particulars Amount Particulars Amount

To Consignment A/c (Returned) XXX By Consignment A/c XXX

To Trading A/c (Transfer) XXX

XXX XXX

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting

In the Books of Consignee

Consignor’s Account
Particulars Amount Particulars Amount
To Cash/Bank A/c (Advance) XXX By Cash/Bank A/c (Sales) XXX
To Bills Payable A/c (Advance) XXX By Consignment Debtors A/c (Cr. Sales) XXX
To Cash/Bank A/c (Expenses) XXX By Purchases A/c (Goods taken) XXX
To Commission A/c XXX
To Del Credere Commission A/c XXX
To Consignment Debtors A/c (Bad XXX
Debts-No Del Cr. Comm.)
To Cash/Bank A/c (remittance) XXX
To Bills Payable A/c XXX
To Balance c/d XXX
XXX XXX

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting

Consignment Debtors Account

Particulars Amount Particulars Amount

To Consignor’s A/c XXX By Cash/Bank A/c (collection) XXX
By Consignor’s A/c (Bad Debts-No Del Cr. Comm.) XXX
By Del Credere Commission A/c (Bad Debts) XXX

XXX XXX

Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.

 Consignment Accounting
Commission Account

Particulars Amount Particulars Amount

To Profit & Loss A/c (Bal. Tfd.) XXX By Consignor’s A/c XXX
XXX XXX

Del Credere Commission Account

Particulars Amount Particulars Amount
To Consignment Debtors A/c (Bad Debts) XXX By Consignor’s A/c XXX

To Profit & Loss A/c (Bal. Tfd.) XXX By Profit & Loss A/c (Bal. Tfd.) XXX
XXX XXX

Profit And Loss Account

Particulars Amount Particulars Amount
To Cash/Bank A/c (Expenses Borne) XXX By Commission A/c XXX
To Profit c/d to Balance Sheet XXX By Del Credere Commission A/c (Net tfd.) XXX
XXX XXX
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Prof. Felix Anthonysamy M.Com, MBA, MA, B. Ed, NET, SET.