Consignment
1
Consignment
Consignor
(Owner of the goods)
•Consignment account
•Goods sent on
Consignment account
•Consignee account
Goods
Consignee
(Agent)
Net proceeds
+
Account sales
•Consignor account
2
Nature of a consignment
If the owner of the goods does not
have retail outlets, he can consign the
goods to an agent.
The agent will sell the goods for him
and receive a commission in return.
3
1. Consignor
• The owner of the goods who sends the
goods to an agent for sale.
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.
4
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.
5
Consignor’s Books
Consignment account
1.
•
It is a profit and loss account for the consignment.
Consignment Account
Expenses
Income
6
2. Consignee account
Consignee Account
Amount owing form consignee
Amount owing to consignee
e.g. Sales
e.g. Expenses, commission
7
3. Goods sent on consignment account
Goods sent on consignment account
Transferring to trading account
Cost of goods sent
8
4. Summary of procedures
Transactions
1. Goods sent on consignment
2. Expenses incurred by the
consignor.
3. Expenses incurred by the
consignee and the commission
payable to the consignee.
4. Sales recorded on the
account sales
Double entries
Dr Consignment
Cr Goods sent on
consignment
Dr Consignment
Cr Bank
Dr Consignment
Cr Consignee
Dr Consignee
Cr Consignment
9
5. Normal loss
No entry
Normal loss of stock of the
consignment which was not
insured. (Normal loss: damaged
stock, obsolete stock)
6. Insurance claim received for normal
stock loss
7.
Abnormal loss
Abnormal stock loss credited to
consignment account. (Abnormal
loss: fire loss, burglary loss, stolen
in transit)
Dr Bank
Cr Consignment
Dr Bank/Insurance company
Dr Profit and Loss
Cr Consignment(Total loss)
8. Payment from the consignee by
cheque or bill
Dr Bank/Bills receivable
Cr Consignee
9. Cost of goods sent on consignment
credited to trading account.
Dr Goods sent on consignment
Cr Trading account
10. Profit on the consignment is
Dr Consignment
transferred to the profit and loss account. Cr Profit and loss
(Reverse the entries if it is a loss.)
10
Goods sent on consignment account
$
9.
Trading
x
$
1.
Consignment
x
11
Consignment
$
1.
2.
3.
Goods sent on consignment
Banks-consignor’s expenses
Consignee- consignee’s
expenses
consignee’s
commission
10. P & L-profit on consignment
x
x
x
$
4.
6.
6.
7.
Consignee-sales
Bank/Insurance Co.-claim
Bank/Insurance Co.-claim
Profit and Loss-net stock loss
x
x
x
x
x
x
x
_
x
12
Consignee
$
4.
Consignment-sales
x
_
x
$
3. Consignment-consignee’s
expenses
consignee’s
commission
8. Bank-settlement from
consignee
x
x
x
x
13
Consignee
$
Consignment-sales
18,000
______
18,000
$
Consignment-expenses
-commission
8. Bank
2,400
1,800
13,800
18,000
14
E. Bad debts of Consignments
A consignee(agent) sells goods and collects
money on behalf of the consignor.
If he can’t collect the debts, these debts
should be treated as the bad debts of the
consignor.
Accounting entries in the books of the consignor:
Dr Consignment
Cr Consignee
15
Consignment
$
Consignee-bad debts
x
Consignee
$
Consignment-bad debts
x
16
If a consignee receives an additional
commission (del credere commission),
he must bear all the losses from the
bad debts.
In case of a bad debts arising from
sales of goods on consignment, no
entry is required in the books of the
consignor.
17
Accounting entries in the books of the
consignee
Dr Bad debts
Cr Debtors
(with the bad debts borne by the
consignee personally)
18
Valuation of stock
If there are unsold goods on
consignment at the end of the
accounting period, the value of the
unsold stock will be carried down to the
following period.
19
Consignment
$
Year 1
x
x
Year 2
Balance b/d
$
Year 1
Balance c/d – value of unsold
stock
x
x
x
20
Valuation of stock
= Consignor’s Cost +Consignee’s Expenses
21
Consignor’s cost
= Total consignor’s cost * Units of closing
stock / Total units of goods SENT on
consignment
= [Cost of goods on consignment +
Consignor’s expenses] * Units of
closing stock / Total units of goods
SENT on consignment
22
Consignee’s expense
= Total consignees expenses (excluding
marketing expenses) * Units of closing stock
/ Total units of goods RECEIVED by
consignee (after normal loss)
 Marketing expenses e.g. advertising
expenses,ordinary commission,del credere
commission, salesmen’s salaries, bad debts,
discounts allowed, delivery charges(to customers),
selling expenses, distribution expenses.
23
Example
24
Consignment
$
Goods on Consignment
Bank - freight
- insurance
Chan – port charges
60,000
500
200
700
- delivery charges to warehouse 1,280
- advertising
1,000
- delivery charges to customer
900
- dis. allowed
320
- ordinary com.
4,700
($94000*5%)
- del credere com.
500
(50000*1%)
Chan – sales
(500+440)*$100
94,000
25
Workings
Value of the stock loss (10 boxes)
Stock loss = (1,000 * $60 + $500 +$200) * 10/1,000
= $607
26
Consignment
$
Goods on Consignment
Bank - freight
- insurance
Chan – port charges
60,000
500
200
700
- delivery charges to warehouse 1,280
- advertising
1,000
- delivery charges to customer
900
- dis. allowed
320
- ordinary com.
4,700
($94000*5%)
- del credere com.
500
(50000*1%)
Chan – sales
(500+440)*$100
Bank – claim
Profit and Loss – stock loss
(607-300)
94,000
300
307
27
Workings
Value of the Closing Stock
Consignor’s Cost:
($1,000 * $60 + $500 + $200) * 50/1,000
Consignee’s Expenses:
($700 + $1,280) * 50/990
3,035
100
3,135
28
Consignment
$
Goods on Consignment
Bank - freight
- insurance
Chan – port charges
$
60,000 Chan – sales
500
(500+440)*$100
200 Bank – claim
700 Profit and Loss – stock loss
- delivery charges to warehouse 1,280
(607-300)
- advertising
1,000 Balance c/d
- delivery charges to customer
900
- dis. allowed
320
- ordinary com.
4,700
($94000*5%)
- del credere com.
500
(50000*1%)
Profit and Loss – Profit on
consignment
27,642
94,000
97,742
97,742
300
307
3,135
29
Chan
Consignment - sales
$
94,000
94,000
Consignment
-port charges
-delivery changes to
warehouse
-advertising
-delivery charges to
customers
-dis. allowed
-ordinary com.
-del credere com.
Bank
$
700
1,280
1,000
900
320
4,700
500
84,600
94,000
30
Consignee’s books
A consignee collects sales proceeds and
pays expenses on behalf of the
consignor.
A consignor account should be
maintained to record the money due to
or due from the consignor.
31
Summary of procedures
Transactions
Double entries
1. Goods received form
consignor.
2. Expenses paid by the
consignor.
No entry
3. Commission received
(ordinary and del credere
commission).
4. Expenses paid on behalf of
the consignor.
Dr Consignor
Cr Commission Received
5. Discounts allowed to
customers/
No entry
Dr Consignor
Cr Bank
Dr Consignor
Cr Debtors
32
6. Bad debts borne by the
consignor.
7.Bad debts borne by the
consignee personally. (When the
consignee receives a del credere
commission, he should bear all
losses from bad debts)
8. Cash sales
9. Credit sales
10. Payment to the consignor by
cheque or bill
Dr Consignor
Cr Debtors
Dr Profit and Loss/Bad
Debt
Cr Debtors
Dr Bank/Cash
Cr Consignor
Dr Debtors
Cr Consignor
Dr Consignor
Cr Bank/Bill payable
33
Consignor Account
$
Bank – consignee’s expenses
Commission Received
- ordinary
- del credere
Debtors – dis. allowed
Debtors – bad debts
Bank / Bill payable – to consignor
x
x
x
x
x
x
x
x
$
Bank – sales
Debtors – sales
x
x
_
x
34
Example
The facts are the same as in the pervious example, but the
transaction would be shown in the books of consignee.
In Chan’s Books
Tang – Consignor Account
Bank -port charges
-delivery changes to
warehouse
-advertising
-delivery charges to
customers
$
700
1,280
1,000
Debtor – sales (500 x $100)
$
50,000
Bank – sales (440 x $100)
44,000
900
Commission Received
-ordinary
-Del credere
Bank – to consignor
4,700
500
84,600
94,000
94,000
35
Further
Considerations
36
A. Consignments and the Final
Accounts
The accounts related to a consignment
would be disclosed in the final accounts
as follows:
37
In Consignor’s Book
Trading and Profit and Loss Account
$
Opening Stock
Add Purchases
T
Less Goods on Consignment C
Less Closing Stock
Cost of Goods Sold
Gross Profit
Expenses
Stock Loss of Consignment
Net Profit
$
N
N
N
N
N
N
N
N
C
T
T
Sales
$
N
Gross Profit
Consignment Profit
N
N
C
T
N=figure from normal trading; C=figure from Consignment
T= Total figures
38
Balance Sheet (Extract)
$
Current Assets
Stock (N+C)
Consignee Account
(if it is a debit balance)
$
Current Liabilities
T
OR Consignee Account
C
(if it is a credit balance)
C
39
In Consignee’s Book
The only entries needed is for the commission received.
Trading and Profit and Loss Account
$
Opening Stock
Purchases
Less Closing Stock
Cost of Goods Sold
Gross Profit
$
N
N
N
N
N
N
N
N
N
Expenses
Bad Debts
Bad Debts (If he has received a del
credere commission, he will bear the
Consignment’s bad debts)
C
Net Profit
T
Sales
$
N
N
N
Gross Profit
Commission Received
(from consignor)
C
T
T
40
Balance Sheet (Extract)
$
Current Assets
Stock
Consignor Account
(if it is a debit balance)
$
Current Liabilities
N
OR Consignor Account
C
(if it is a credit balance)
C
41
Consignments and Joint
Ventures:
If the party to a joint venture sends some goods to
an agent for sale, the transactions will be entered
as follows:
No consignment account is opened
If no consignment account is kept, all the transactions of
the consignements should be recorded in the foint venture
account.
A consignemnt account is opened
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(i) No consignment account is opened
Joint Venture Account
$
Bank – joint venture expenses
X
Bank – consignment expenses
incurred by the consignor
X
Consignee – consignment expenses
incurred by the consignee
$
Bank – joint venture sales
X
Consignee – consignment sales
X
Stock c/d – unsold stock of joint
venture and consignment
X
X
Profit and Loss – share of profit
X
Bank – settlement
X
X
X
43
Memorandum Joint Venture Account
$
Expenses – joint venture and
consignment
$
Sales – joint venture and
X
consignment
X
Stock c/d – joint venture and
Share of Profit:
A
X
B
X
consignment
X
X
X
X
44
(ii) A consignment account is opened
Joint Venture Account
$
$
Bank – joint venture expenses
X
Bank – joint venture sales
X
Profit and Loss – share of profit
X
Goods Sent on Consignment
X
Bank – settlement
X
Consignment – profit
X
Stock c/d – unsold stock of joint
venture only
X
X
X
45
Consignment Account
$
$
Goods Sent on Consignment
X
Sales – joint venture only
X
Bank – expenses
X
Goods Sent on Consignment
X
Consignee – expenses
X
Consignment – profit
X
Joint Venture – consignment profit
X
Stock c/d – joint venture only
X
X
X
46
Memorandum Joint Venture Account
Expenses – joint venture only
$
X
Share of Profit:
A
X
B
X
X
X
Sales – joint venture only
$
X
Goods Sent on Consignment
X
Consignment – profit
X
Stock c/d – joint venture only
X
X
47