CONSIGNMENT ACCOUNTS Unit 1 Second Sem BCom 21-22GFGC GBD

 

Module: 1 - CONSIGNMENT ACCOUNTS 14 Hrs Consignment - Introduction & Meaning; Consignor & Consignee; Goods Invoiced at Cost Price; Goods Invoiced at Selling Price; Normal Loss & Abnormal Loss; Valuation of Stock; Stock Reserve; Journal Entries & Ledger Accounts in the books of Consignor and Consignee 

What is Consignment Accounting?

Consignment accounting is a type of business arrangement in which one person sends goods to another person for sale on his behalf, and the person who sends goods is called the consignor. Another person who receives the goods is called the consignee; where the consignee sells the goods on behalf of the consignor on consideration of a certain percentage on sale.

 

Explanation

In Consignment, goods are left in the hands of an authorized third party called the consignee for sale on behalf of the consignor. Ownership of goods remains in the hands of the consignor. The agreement made between the consignor and consignee is for a smooth flow of transactions, with a clear understanding of the terms and conditions. Typical products sold through consignment include clothing, shoes, furniture, toys, music & other instruments, etc.

1. Two Parties: Consignment accounting mainly involves two parties, the consignor and consignee.
2. Transfer of Procession: Procession of goods transferred from consignor to consignee.
3. Agreement: There is a pre-agreement between the consignor and consignee for the terms and conditions of the consignment.
4. No Transfer of Ownership: The ownership of goods remains in the hands of the consignor until the consignee sells them. The only procession of goods is transferred to a consignee.
5. Re-Conciliation: At the end of the year or periodic intervals consignor sends a Pro-forma invoice while the consignee sends account sale details, and both reconcile their accounts.
6. Separate Accounting: There is independent accounting done of the consignment account in the books of the consignor and consignee. Both prepare consignment accounts and record the journal entries of goods through consignment accounts only.

Terms Used in Consignment Accounts

The following terms are used in consignment accounting:

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1. Consignor: It is the person that sends goods.
2. Consignee: The person who receives the goods is called the consignee.
3. Consignment: Consignment is a business arrangement through which the consignor sends goods to the consignee for sale.
4. Consignment Agreement: It is a legally written communication between the consignor and consignee, which defines the terms and conditions of the consignment.
5. Pro-Forma Invoice: When the consignor sends goods to the consignee, he also forwards statements showing details of goods such as quantity, price, etc., and that statement is called the Pro-forma invoice.
6. Non-Recurring Expenses: Expenses that the consignor incurs to dispatch the goods from his place to the consignee’s place are called non-recurring expenses. These expenses are added to the cost of goods.
7. Recurring Expenses: The consignee incurs these expenses after the goods reach his place. These expenses are maintenance of goods type expenses.
8. Commission: Commission is the reward/ consideration for the sale of goods on behalf of the consignor. It is as per the consignment agreement.
9. Account Sale: It is the statement forwarded by the consignee to the consignor showing details of goods sold, amounts received, expenses incurred, a commission charged, advance payment and balance due and stock in hand, etc.