CONSIGNMENT ACCOUNTING
By.
Msuya, A.W
7/13/2022
1
Introduction
• The sales activity can be organized in either:
– Directly sales through own salesmen
• the company usually has depots and from there finally
sold to final consumers
– Indirectly sales through agents
• the firm can appoint agents to whom stocks will be
sent.
• Agents will distribute the products to final customers
and receive commission from the manufacturer.
– This way of selling is selling through consignment agents.
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Introduction
– Consignment occurs where goods are transferred
from the owner (Consignor) to an agent
(Consignee)
• For the purpose of sale
• By the consignee
• On behalf of the consignor
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Introduction
• The relationship between consignor and
consignee is that of
– Principal –Agent relationship
– Because of the agency relationship,
• The ownership of the goods does not transfer to the
Consignee,
• Possession of the goods is transferred to the Consignee
• The Consignee is entitled to a commission for selling
the goods.
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Key terms
• Consignment
– The transfer of goods by one party called a
Consignor to another party called the Consignee,
to be sold by the Consignee on behalf of the
Consignor.
– The consignment is outward consignment for the
person who sends the goods and
– inward consignment for the person who received
the goods for sale.
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Key terms
• Consignor
– Is the party who sends the goods to an agent for
sale
– E.g Manufacturer, Wholeseller
• Consignee
– Is the party to whom the goods are sent for sale.
– When goods are sold, Consignee is paid a
commission for his service at a fixed rate on the
proceeds of the goods sold by him.
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Key terms
– In addition, the Consignee is to be refunded for all
expenses incurred by him in connection with the
consignment sales.
– Also, is paid additional commission called Del
Credere Commission
• for taking over additional responsibility of collecting
money from customers (Debtors)-Credit sales
• If this additional commission is not paid,
– for any irrecoverable debtors, the loss will fall upon the
Consignor.
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Key terms
• When del credere Commission is given to the
Consignee,
– The Consignee will make payment to the
Consignor, whether he himself receives the
payment or not from the customer.
– Overriding Commission is additional commission
allowed to the Consignee,
• To provide additional incentives for the purpose of
creating market for new products.
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Key terms
• Account sales is a summary of transactions of
the Consignee.
– It is the way of conveying information to the
Consignor
•
•
•
•
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Shows the gross proceeds of sale of goods,
Expenses incurred by the Consignee
Commission due and
The net amount owing to the Consignor
9
Advance against Consignment
• When goods are sent to Consignee,
– The Consignee is not expected to pay for them
until the goods are sold.
– This Results in part of the Consignor’s capital
being locked up for a period.
– To overcome this difficulty, the Consignee often
remits a sum of money in advance to the
Consignor.
• When the goods have become popular in the
Consignee’s place.
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Advance against Consignment
• When the goods are consigned to an agent
they are generally accompanied by a
document called
– Pro-forma Invoice which give indication of the
price of the goods at which the Consignee should
sell the goods.
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Operating cycle of Consignment
arrangement
• Goods are sent by Consignor to the Consignee
• Consignee may pay some advance
• Consignee will incur expenses for selling the
goods
• Consignee maintains records of all cash and
credit sales
• Consignee prepares a summary of results
called Account sales
• Consignor pays commission to the Consignee
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Features of consignment
• Ownership
– Remain with the Consignor till goods are sold
• Relationship
– Principal-Agent relationship
• Risk
– Fall to Consignor till goods are sold
• Expenses
– Consignor should reimburse all legitimate
expenses incurred by Consignee.
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Features of consignment
• Stock of goods
– Unsold stocks belong to the Consignor
• Commission
– Agreed rate of commission from the sale proceeds
• Possession
– On the Consignee until it is sold
• Repossession
– Consignor can repossess the goods at any time
• Profit or loss
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Difference between sale and
Consignment
• Discuss in groups -5 minutes
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Accounting for Consignment
• Books of the Consignor
– Transactions relating to each consignment are
recorded in order to determine the profit or loss
on each consignment
– Require preparation of special account called
Consignment account
– This is nominal account prepared to find out the
profit or loss of a consignment.
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Accounting for Consignment
– The account is debited with
• Cost of goods sent
• Expenses incurred by the consignor and consignee
• The commission due to the consignee
– The account is credited with
• Amount of sales
• Closing stock, if any
• The balance of this account is either profit or loss
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Accounting for Consignment
• The Consignor also prepares the Personal
account of the Consignee to determine the
amount due by him.
– This account is debited with
• Amount of sales and
– credited with
• Amount of any advanced received from him
• Expenses incurred by him and
• Commission payable on sales
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– The balance in this account is the amount due by the
consignee.
18
Double entry
• On sending goods
– Dr. Consignment account
–
Cr. Goods sent on consignment
• Expenses for sending goods by Consignor
– Dr. Consignment account
–
Cr. Cash/bank a/c
• Advance made by Consignee
– Dr. Cash/bank a/c
–
Cr. Consignee Personal A/c
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Double entry
• Expenses incurred by Consignee
– Dr. Consignment account
–
Cr. Consignee Personal a/c
• Sales made by Consignee
– Dr. Consignee Personal a/c
–
Cr. Consignment account
• Consignee Commission
– Dr. Consignment a/c
–
Cr. Consignee Personal c/c
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Double entry
• Goods returned by Consignee
– Dr. Goods sent on Consignment
–
Cr. Consignment a/c
• Bad debts incurred (no del credere
commission)
– Dr. Consignment a/c
–
Cr. Consignee Personal a/c
• Remittance by the Consignee in full settlement
– Dr. Cash/bank a/c
–
Cr. Consignee Personal a/c
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Double entry
• Closing entry for goods sent on consignment
– Dr. Goods sent on consignment
–
Cr. Trading a/c
• On closing stock/unsold stock
– Dr. Consignment stock a/c
–
Cr. Consignment a/c
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Double entry
• Books of Consignee
• Advance made by Consignee
– Dr. Consignor Personal a/c
–
Cr. Cash/Bank a/c
• Sales of goods by Consignee
– Dr. Cash/Bank –Cash sales
– Dr. Consignment Debtor-Credit sales
–
Cr. Consignor Personal a/c
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Double entry
• Expenses incurred by consignee
– Dr. Consignor personal a/c
–
Cr. Cash/bank a/c
• Commission due by the Consignee
– Dr. Consignor Personal a/c
–
Cr. Commission a/c
• Payment received from debtors
– Dr. Cash/bank a/c
–
Cr. Consignment Debtors
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Double entry
• Bad debts incurred (No del credere
Commission)
– Dr. Consignor Personal a/c
–
Cr. Consignment Debtor a/c
• Bad debts incurred (Del credere commission is
provided)
– Dr. Bad debts a/c
–
Cr. Consignment Debtor a/c
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Unsold stock
• Cost price involve original price plus any
expenses in transporting the goods to the
place of sale
• Valuation of closing stock include the
following
– Carriage and freight
– Customs duty
– Clearing charges etc.
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Unsold stock
• Expenses incurred in selling the goods are not
included : Advertisement, salesmen’s salaries
and commission, storage, insurance on fire,
theft
• The balance of consignment stock account is a
current asset
• In the next financial year the balance of
consignment stock will be transferred to
consignment account as a debit.
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Normal loss
• Normal loss is natural, unavoidable and
inherent in the nature of goods sent on
consignment
– Due to evaporation, leakage & breaking the bulk
into pieces.
• This type of loss is a part of the cost of the
consignment,
– so the consignor does not make separate entry for
such a loss.
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Normal loss
• Normal loss has to be taken into consideration
while valuating the unsold stock in the hand of
the consignee.
– the quantity of such loss (not the amount) should
be deducted from the total quantity of the goods
received by the consignee in good condition.
– The accounting treatment of normal loss is to
charge the total cost of the goods to the
remaining goods after the normal loss.
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Normal loss
• The value of the unsold stock is calculated in
proportion to the total cost of the goods
consigned.
• Value of unsold stock = Total cost of goods
sent/Units of goods sent – Normal loss (unit) ×
unsold quantity
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Abnormal loss
• It arises due to abnormal factors or
circumstances such as
– fire, theft pilferage, sabotage, negligence,
inefficiency, etc.
• This loss is calculated by adding proportionate
direct expenses incurred by the consignor and
the consignee as the case may be to the
original cost of the goods.
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Abnormal loss
• Accounting entries
– Dr. Abnormal loss a/c
– Cr. Consignment a/c
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Abnormal loss
• Sometimes insurance company admits the
claim in part or in full.
– Should also be adjusted against such abnormal
loss.
• If the stock is insured, the amount of claim
admitted by the insurance company should be
reduced from the abnormal loss and
– only the net loss amount should be debited to
abnormal loss or P&L A/c,
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Abnormal loss
– Dr. Insurance company –with amount admitted
– Dr. Abnormal loss or P&L a/c-with the amount of
loss
– Cr. Consignment a/c-Total abnormal loss
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Abnormal loss
• Calculation of abnormal loss
– Cost of goods lost
xxxx
– Proportionate expenses of the goods lost xxxx
– Less: any amount of claim
(xxx)
(any received from insurance co.)
xxx
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Invoicing goods at a price higher
than cost
• The goods can be invoiced at a price higher
than the cost price
• This is done when the consignor wants to
maintain secrecy with the profit from the
goods sent.
• Such a price is called invoice price
• This price is obtained by taking cost plus a
certain amount of profit
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Invoicing goods at a price higher
than cost
• The invoice price is not the same as selling
price.
– It is the price at which the consignor send the
goods to the consignee.
• The selling price is the price at which the
Consignee sells the goods to the customers
• Invoice price (IP) is higher than the cost price
(CP) , and selling price is higher than both IP
and CP.
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Invoicing goods at a price higher
than cost
• If the consignor direct the consignee to sell
the goods at IP, then the SP and IP will be the
same.
• Loading is the amount of profit added to cost
to arrive at the IP.
• Loading = IP - CP
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Invoicing goods at a price higher
than cost
• Items which need adjustment on loading
– Opening stock
– Goods sent on Consignment
– Goods returned by the Consignee
– Closing stock
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Invoicing goods at a price higher
than cost
• Journal entries
• Opening stock
– Dr. Stock reserve a/c
–
Cr. Consignment a/c
• Goods sent on consignment
– Dr. Goods sent on consignment
–
Cr. Consignment a/c
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Invoicing goods at a price higher
than cost
• Goods returned by the consignee
– Dr. Consignment a/c
–
Cr. Goods sent on consignment
• Closing tock
– Dr. Consignment a/c
–
Cr. Stock reserve a/c
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ACCOUNTING FOR CONTAINER
By.
Msuya, A.W
7/13/2022
42
Introduction
• Most manufacturers or producers of goods
pack their products using different forms of
material enclosures.
• The packages used in dispatching the goods to
customers are referred to as containers.
• Container refer to anything which is used for
packing goods for distribution and sale.
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Types of container
• Non-returnable container
– These are containers which the customers are not
expected to return to producer after the
consumption of the product. E.g Plastic bottle for
water, Packet for sugar
– The cost of such container is treated as part of the
cost of production and its therefore included I the
sales price.
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Types of container
• Returnable container
– These are specially designed to be returned by
customer after consuming the content therein.
Example bottle for supply of soft drinks
– The cost of such container is not included in the
cost of production.
– The Manufacturer will encourage customers to
return these containers by making a charge when
they are supplied and allowing a credit when it is
returned within an agreed time.
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Types of container
– When the container is not returned within an
agreed time period the containers are usually
written off by the supplier of the commodity.
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Importance of container accounts
• Providing a basis for monitoring the
movement of containers both
– in the warehouse and in the hands of customers
• Providing a basis for measuring profit or loss
on containers supplied
• Providing records for available, lost, damaged
or scrapped containers
• Showing amount of debtors for containers
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Accounting Arrangement
• Non-returnable containers
– The cost of such container is treated as part of
cost of production and its therefore included in
the sales price.
– Container stock account is maintained, in which
opening stock and purchases during the period
are debited
– The unit and value of unused containers will be
ascertained and credited as carried down.
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Accounting Arrangement
– The difference between both sides of the account
represents containers used during the period.
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Accounting Arrangement
• Returnable containers
– Problems:
• The closing stock may be held partly in the warehouse
and partly in the hands of customers
• Each container will have a limited life and a reasonable
allowance for depreciation must be made
• Some of damaged containers may be repaired from
time to time and eventually scrapped when they are no
longer in use
• Profit may arise if price charged to customers is above
cost
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Accounting Arrangement
– Problems:
• Further profit may arise if the allowance made on
return is less than price charged
• A time limit may be set for return after which the
container in hand of customers will be written off
• Each container should have an ID no.
• These no need to be cancelled after the movement of
containers.
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Important terms
• Charge out price: is the price which is charged
when containers are sent out.
• Return price/Refund rate: Is the amount
refunded in return of a container within a
specified period.
• Cost price: Is the cost of each container
purchased or manufactured during the year.
• Valuation price: Is the amount at which
containers are valued at stock taking.
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Important terms
• Hire charge: Is the excess of the charged out
price over the return price in respect of the
containers sent to customers.
– Hire charge = (Charge out price – Return price) ×
No. of containers charged out
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Important terms
• Depreciation: Is reduction in value of the
containers as a result of using (wear and tear),
obsolescence etc.
– Depreciation = Qty purchased/manufactured ×
(Cost price – Valuation price)
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Important terms
• Profit on retained containers
– Is the excess of the return price over the valuation
price of the containers retained by customers.
– Profit on retained containers = Qty retained ×
(Return price – Valuation price)
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Accounting Method
• Container Suspense account method
– Under this method, two accounts are prepared:
• Container stock account
– Is to cater for stock movement between entity and customers.
– Is to ascertain profit or loss in container dealings.
• Container suspense account
– Is to keep record of containers and ascertain the hiring charge
made to customers
– Is used to keep track of container debtors
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Container stock account
• Is debited with value of stock brought
forward, purchase of additional containers
during the year and cost of repairs and
maintenance.
• Damaged, scrapped, retained stock and hire
charges are credited along with the closing
stocks in the warehouse and in the hands of
customers.
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Container stock account
• The difference between both sides represents
either profit or loss
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Container suspense account
• Is credited with the opening stock in the
hands of customers and value of containers
issued to customers.
• Is debited with containers returned and
retained by customers, and the closing stock.
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Accounting Entries
• Balance of stock or container at the beginning
of the year
– In the hands of customers and in the warehouse
– Dr. Container stock a/c-By Qty and Valuation rate
– Cr. Container suspense a/c- By Qty and value of
refunded rate for those containers which are in
the hands of customers only.
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Accounting Entries
• When containers are bought or purchased
– Dr. container stock a/c-By Qty and purchase price
– Cr. Bank/liability a/c-By purchase price
• When containers purchased from supplier are
returned
– Dr. Bank/supplier a/c– Cr. Container stock a/c-By Qty and purchase price
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Accounting Entries
• When containers are sent out to customers
– Dr. Sundry debtors a/c- at a charged out value
– Cr. Container suspense a/c- By Qty and charged
out price
• When containers are returned by customers
– Dr. Container suspense a/c- By Qty and return rate
– Cr. Sundry debtors a/c
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Accounting Entries
• When some containers are sold-off
– Dr. Bank a/c
– Cr. Container stock a/c-By Qty and sales proceeds
• When containers are retained by customers
beyond the allowed period
– Dr. Container suspense a/c – By Qty and refunded
rate
– Cr. Container stock a/c –By Qty and refunded rate
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Accounting Entries
• When containers scraped/lost/damaged
beyond repair (realizing nothing)
– Dr. Profit or loss a/c
– Cr. Container stock a/c-By Qty only
• When containers are reconditioned or
repaired, thus paying additional money
– Dr. Container stock a/c- By amount only
– Cr. Bank a/c - By amount spent in repair
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Accounting Entries
• Recognition of hiring charge
– Dr. Container suspense a/c- By amount only
– Cr. Container stock a/c – By amount only
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CONTAINER STOCK A/C
Details
Qty
Rate
Amount
Balance b/d
• Customer
xxx
VR
yyyy
• Warehouse
xxx
VR
yyyy
Purchase
xxx
PP
yyyy
Bank
• Repair
Profit or loss
(Balancing
figure)
-
-
yyyy
Details
Qty
Rate
Amount
Bank
xxx
PP
yyyy
xxx
SP
yyyy
• Retained
xxx
RR
yyyy
Scrap/lost/damage
xxx
Bank
Sales
Container suspense
Container suspense
• Hiring charge
yyyy
Balance c/d
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• Customer
xxx
VR
yyyy
• Warehouse
xxx
VR
yyyy
66
CONTAINER SUSPENSE A/C
Details
Qty
Rate Amount
Details
Refunded
xxx
RR
Balance b/d
yyyy
• Customer
Container stock
• Retained
xxx
RR
yyyy
• Hiring charge
(Balancing figure)
-
-
yyyy
Balance c/d
xxx
RR
yyyy
Sent out/debtors
Qty
Rate Amount
xxx
RR
yyyy
CR
yyyy
Container stock
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How to find out missing items
• In many problems there will be missing
information regarding, say, containers
retained by customers, containers sent out
during the period, balance on hand at both
warehouse and in customers hands.
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Missing info: Stock in warehouse.
Opening stock
Add: Purchases
xxx
less: Return to supplier (xx )
Returns by customers
xxx
Less: Sent to customers
xxx
xxx
xxx
( xxx)
Damaged stock written off
Closing stock in warehouse
(xxx)
xxxx
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Missing info: Stock in warehouse.
Alternatively;
Stock of Containers in warehouse
Balance b/d
xx Return to supplies xx
Sent to customers xx
Purchases
xx Sold/destroyed
xx
Return from customer xx Balance c/d
xx
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Missing info: Stock in the hands of
customers.
Opening balance with customers
Add: Containers sent customers
Less: Return by customers
Retained by customers
Balance in the hands of customers
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xxx
xxx
(xxx)
(xxx)
xxx
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An extract of the Statement of
financial position
• Balance in container stock a/c (both at
warehouse and customers) at valuation =
current assets as stock
• Balance in container suspense a/c – current
liability as refund.
• Profit or loss ascertained in container stock –
statement of comprehensive income as other
incomes.
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THE END
THANKS FOR LISTENING
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