UNIT 10 CONSIGNMENT ACCOUNTS-I

Structure
Objectives
Introduction
Concepts of Consignment
10.2.1 What is Consignment?
10.2.2 Parties to Consignment
10.2.3 Features of Consignment
10.2.4 Distinction between Sale and Consignmcnt
10.2.5 Important Terms in Consignment
Accounting Treatment
10.3.1 Books of Consignor
10.3.2 Books of Consignee
Let Us Sum Up
Key Words
Some Useful Books
Answers to Check Your Progress
Terminal Questions/Exercises

1b.0 OBJECTIVES

~ k estudying
r this unit you s h o ~ ~be
l d able to:
0 explain the meaning of consignment
0 .'distinguish it from sale ,

. 0 : identify the parties involved in donsignment and describe their relationship

explain the basic framework of accounting for consignment transactions in the books of
the consignor nnd the consignee.

10.1 INTRODUCTION - -- - -- --

The-producers often make ~ ~ $ selling

o f agents and distributors in tlieir channel of
distribution, This is particulare true of the agricultural goods. The selling agents/distributo~.s
act in various ways. One of &t methods used is to receive the goods on consignment basis.
Under this syqfem the agent receives the goods and uNertakes to sell it on behalf of the
consignor. He often settles the account of the consignor after all the goods received from
him have been sold. This involves certain peculiarities in accounting. In this unit you will
learn about vhrious concepts relating to consignment and the basic framework of accounting
for consignment transactions in the books of the consignor and the consignee.

10.2 CONCEPTS OF CONSIGNMENT

You know that goods are often sent by the producer on consignment basis to the selling
agents or distributors. Let us now understand what exactly we mean by consignment, how
does it differ from sale and what kind of relationship exists between the consignor and the
consignee.

10.2.1 What is Conskhment ?

When goods are sent byk m'anufacturer or a trader to an agent to be sold by him on
comn~issionbasis and at the risk and account of the former, they are said to be sent o n
. consignment. In other words a producerltrader forwards his products to his selling agents,
Consig~menta;d itppointed at different places, to sell tllcm on his behalf for an agreed commission. 'rhe
loint Venture
process of sending goods on this basis by one fir111to c~notlierfor sale is known as
'Consignrnent' and this transaction is called a 'Consignment Transaction'. The consignment '

is 'Outward Consignment' for the person who sends the goods and an 'Inward
Consignment' for the person who receives the goods for sale.
u

10.2.2 Parties to Consignlnent

You know that in consignment the goods are sent by one person to another for salc by the
latter on behalf of the fomier. Therefore. there are two parties involved: ( 1 ) the person who
sends the goods and, (ii) the person to whoni the poocls are sent. The person who sends the
goods to the agent is called the consignor and the person to whom the goods are sent for salc
is called the consignee.
If 'X' sends goods to 'Y' for sale, 'X' is known as consignor and ' Y ' consignee. The
Consignor is the 'principal' and the consignee is the 'agent'. Their rnutual relations are
governed by the Law of Agency and, of course, hy the terms of the conlrnct between
themselves. The consignee is a special kind of agent who is in possession of the goods. He
passes the title of the goods to those who buy frorn him even i f he sells the gc~odsin
contravention to the principal's instructions. Suppose, the consignor instructs the consignee
not to sell the goods below a certain price. If the consignee sell3 the goods below the
stipulated price, the buyer will have good title to the goods. 'The consignor may, of course,
ask the consignee to pay damages for breaking the terms or the contract with him. Like all
agents, the consignee must render true accounts to the consignor, be faithtul to him, and act
, according to his instructions. He is entitled to remuneration and reimbursement of expenses
incurred by him on behalf of the consignor.

10.2.3 Features of Consignment

Goods are forwarded by the consignor to the cohsignee with an objective of sale at a
l
profit.
0 Under the consignment. goods are to be treated as the property of the consignor and to be*
sold ar his risk entirely. The consignee does no1 buy the goods, he merely undertalces lo
sell them on behalf of the consignor. He is not responsible for any loss or even for iiny
' 1
1
destructions or damages to the goods. But the consignee should not show any negligencc.
I
@ The consignor does not sell the good? to the cc.,tsipnee. Therefore, he can not ask the
consignee to pay the price of the goods unless tn\.y are sold and the sale proceeds are
actually realised.
The consignee agrees to sell the goods for an agreed rate of commission and 1s allowed to
deduct his commission due from the hale procecds.
0 The agenl enters into the picture only when hc sells the goods and realises the amount. 1
He becomes indebted for amounts realised on behalf of the principal. The relationship !
between the consignor and the consignee is that of a principal and an agent.
I
@ As it is not a sale, whatever the consignee does is on behalf of the consignor and, 1
therefore, all legitimate expenses incurred by the consignee for receiving and selling [he
goods should be reimbursed.
@ Any stock remaining unsold with the consignee belongs to the consignor.
@ As the consignee acts on behalf of the consignor, the profit or loss on sale of goods sent
on consignment belongs to the consignor.

10.2.4 Distinction between Sale and Consignment 6

Plthough the possession of goods is transferred from one person to the other both in case of
sale and in case of consignment, they differ from each other in various ways. The difference
. between an outright sale and the goods sent on consignment has been explained as follows:
-
. --- -

No. and Itern 7- Sale .--1 ~onsignm~nt

Conslsnment Accounts I

I Parties Seller and Buyer Consignor and Consignee

Owriership and title of goods The legal ownerahip and title of ',
2 Ownership and
title of goods is transferred to the buyer goods is not transferred to the
of the goods. consignee. It remains with the
consignor till they are sold.

3 Relationship The relationship hctween the The relationship between the

seller and the buyer of the consignor and the consignee is that
goods is that of a creditor .of a principal and an agent. The . , ,

and tiebtor. consignee is to sell goorls on behalf

of the consignor.

4 Expenses Expenses incurred after sale Expenses incurred by the consignee

of goods are borne by the in connection with the goods
buyer. consigned to him are bome by the
consignor.

5 Risk Risk a~tachedto the goods Risk attached to the goods consigned
sold is transferred to the lies with the consignor ti11 the
buyer of goods as soon as goods consigned ore sold. In case
goods are sold. In case, the the goods are destroyed the lass
goods are destroyed after sale, is borne by the consignor.
the loss is suffered by the buyer
6 Return of Goods Rettim of goods is not Goods onn be returned if they
possible as goods once are not sold by the consignee.
sold are not returnable
7 Account Sales No Account sale is required Account side has to be submitted
to be submitted hy the buyer by the consignee to the consignor
.. to the seller. from time to time.

8 Uosold Goods The seller has nothing to do Unsold $oods with the consignee
with the goods which could will be treated as stock of the
no1 be resold. consignor.

The distinction between sale and consignment given above also amply clarifies the
difference between the rights and duties of the buyer and the consignee. -.
. ',
:I.. --.. . .. __. .
-
Thetk Your Progress A ,/ 'I

1 Read lhe following carefully and tick mark the cmect answer.
a) The relationship between the consignor and the consignee is that of
i) Buyer and Seller
ii) Principal and Agent
#
iii) Debtor and Creditor
b) The term used for consignee's remuneration is
, i) Comtnission
ii) .Brokerage
iii) Discount
c) The party responsible for thk risk attached to the goods in consignment is
i) Consignee
ii) Consignor
iii) Both
d) The legal ownership of the goods is not transferred till the goods are sold in case of
i) Sale
ii) Consignment.
iii) Both
2 State whether the following statements are True or False.
i) .Despatch of goods on consignment amounts to sale .........,..,...
of goods by the consignor
ii) All the legitimate expenses incug-ed by the consignee relating to '

consignment are borne by the consignor. ....,.,..,,......

Consignment and iii) For the consignor the consignment is an outward consignment and the
.Joint Venture same becomes an inward consignment for the consignee. .............,
iv) Goods are treated as sales under consignment when they are consigned. ..............
,
4
V ) The consignee does not become the debtor of the consignor on - . .............
receipt of goods. - -- -
> .
---
-. .- - , ---A
I

10.2.5 ~ r n ~ o r t a Terms
nt in Consignment
There are a few terms relating to consignment which are commonly used. These are
proforma invoice, account sales, non-recurring and recurring expenses, commission,
advance, etc. These are explained as follows:
'
Proforma Invoice : Since the goods sent on consignment cannot be treated as sales, the i
consignor does not prepare proper invoice. He simply prepares a Proforma Invoice and
sends it to the consignee, along with the goods despatched. This is prepared with a view to
. inform the consignee about price of goods, expenses incurred, mode of transportation and
the minimum sale price at which the goods are to be sold. A specimbn of proforma invoice
is given in figure 10.1

Figure 10.1'
Specimen of Proform? Invoice.
BABBAR TRADERS
Proforma Invoice 222, Mount Road
Madras
For Goods Sent on consignment basis to: Oct. 10, 1986
MIS Hari Kishan Enterprises,
Hauz Khas, New Delhi.
Serial No. 1 Particulars 1 Amount
Rs.
500 Bush Radio sets
at Rs. 600 each
Charges :
Packing and Cartage 4,000
Freight 3,000
Insurance 6,000

Total
:
Goods despat~hedvide R.R.NO.
Srmt. G.834866, Dated 10/10/86
Freight to pay,
For Babbar Trnder
(D. BABBAR)
Partner

Note: 'E.Br.0.E.stands for Errors and Omissions Excepted. Which mean that invoice is subject to the errors of
omission and commission.
In the above invoice Babbar Traders are the consignors and Hari Kishan Enterprises the consignee. Goods
worth Rs. 3.00.000 have been consigned on which a sum d'Rs. 13,000 has been incurred on various
expenses.

Account Sales : As the consignee is an agent and is selling the goods on behalf of the
consignor, he has to furnish the details of sale proceeds, expenses, commission, etc. to the
consignor. He furnishes all these details by means of a statement called 'Account Sales'.
This shows the quantity and description of goods sold, sale proceeds realised, the exp. nses
incurred by the consignee, commission due to him, and the balance amount payable by him
to the consignor. While preparing an Account Sales the consignee wijl deduct all expenses
incurred by him in relation to the consignment and the commission due to him. The
remittances made in advance, if any, are also to be deducted from the balance so obtained.
The consignee will send a bank draft or his acceptance for the balance due to the consignof.'
Illustration 1 will give you a clear understanding as to how an Account Sales is prepared. i

Illustration 1
'
On January I , 1987 Babbar Traders of Bombay consigned 500 Bush Radio sets to Hari
1
Kishan Enterprises, Madras. The cost of each set was Rs. 750. On receiving the I

consignment, Hari Kishan Enterprises sent a bank draft for Rs. 25,000 as an advance to
 r
Babbar Traders. Hari Kjshan Enterpris* paid Rs.T;500 for freight. Rs, 2 , 0 d for mth, Consigninent Accounts I
Rs. 2,500 for godown rent and other selling expenses. Hari Kishan enterprises ~ubmittedan
Account Sale on March, 1, 1987 showing that all the sets had been sold at Rs. 850 each.
They were entitled to 10% commission on sales. Prepare the Account Sales.

Solution
ACCOUNT SALES
of 500 Bush Radio Sets received from Babbar Traders, Madras

S.No. Particulars Amount

1I' Sale Proceeds :

500 Bush Radio Sets sold at Rs. 850 each
Rs.

4,25,000
Less: *,
I
Freight
' #
Octroi
Godown rent & selling
expenses -

Less :
Commission nt 10% on sale proceeds
(i.e. Rs. 4,25,000 x 10%/100)

Less : , .
~ d v a n c (Bank
e Draft)
Balance due to Babbar Traders
,remittedas per draft enclosed
1 I

E. & 0. E. For Hari Kishan Enterprises

HARI KISHAN' .
Dated 0 1 ~ 3 / 8 7 Managing Prutner

Commission : It is the remuneration paid to the consignee by the consignor in consideration

of the services rendered by the former in selling the goods consigned. This commission can
' b;:divided into two types (a) Ordinary Commission, and (b) Special Commission.
a) Ordinary Commission : It is a commission usually paid as a fixed percentage on gross
sale proceeds. The terms commission normally denotes ordinary commission, unless
specified otherwise. The consignee is not responsible for any bad debts and he does not
guarantee the payment from all those who buy on credit so long as he is getting ordinary
commission only.
'
, b) Special Commission : This is the commission which the consignee gets over and above
the ordinary commission. It can be sub-divided into two categories viz., (i) Over-riding
Commission and (ii) Del Credre Commission. - ' .
i) ,Over-riding Commission :This is anpxtra commission allowed over and above the
normal commission and is generally offered when the agent is required to put in hard
work either in introducing a new product in the market or where he is entrusted.with
the work of supervising the performance of other agents in a particular area. This
commission is also given for sales at prices higher than the price fixed by the
consignor.
ii) Del Credre Commission : Usually, all the losses are borne byWe consignor.
Sometimes the consignor expectg,thatthe consignee should also be responsible for
rekovering the debts and bear the loss on account of bad debts,'if any. In order to
compensate him for this responsibility he is given some extra commission called
; 'Del Credre Commission'. Such commission is calculated on the total sales unless
there is a special agreement to the effect that it is to be paid only on the amount of
credit sales. Payment of this commission imposes extra liability on the consignee and
,
,,
induces him to deal in a prudent and ~ t i o u manner.
s
In Illustration 2 we have given you the details regarding,the computation of commission. It
would certainly give you an idea about the calculation of normal commission and special
a

.!commission.
I .
 Consi~nrncntend Illustration 2
Joint Venture
Rajadhar~iCycles Ltd, sent 2,000 dynamos costing Ks. 50 each for sale on consignment
basis to Banerjee & Co. Calcutta. Normal selling price per dynarrio is Rs. 60. Consignee is
entitled to commissioil at i) 5% on normal selling price; ii) 10% additional conlnlission on
excess sales and iii) 1 '/a% Del credre commission on total sales for guaranteeing cqlection
of credit sales. Banerjze & Co. reported sales of 500 dynnmos at Rs. 60 each and
dynamos at Rs. 75 each on cash basis and 400 dynarnos at Rs. 75 each and another 400 at
Rs. 80 each on credit basis, Compute consignee's commission.

Solution :

Total Snles :
500 units @ K b 60 iach
2W1 unirs @ Ks 75 each
400 unirs @ Ks 7.5 eacn
4OO 111lils@ Rs KO e:lch

i ) Norrr~alCommission :
5% on norn1;il price of goods bold.
N~llnberof units sold arc: 1,5(H)( S O+ 2(Kl+ dOO + 4(W)
Normal selling price per unit : Rs. 60
Norn~aISale: 1500 x 60 = Ks. 90,000

i i ) Additionrl Commission : 10% o n an~ountrealized in excess of thc rionnal price

Rs.
Toral Sales Value: I .07,0(K)
Normal Sales Value: 90,000
- -- -.-- - -
Excess Silks Vslue: 11-000

I
l Q 011 Total Salts

'i'otal Comrt~issionti) + ( i i ) + (iii) = Ks.4.500 + Rs.1.700 + Ks.1.605

= Kh. 7.805

Expenses : Expenses relating to consignment of goods are divided into two categories v i ~ . ,
(i) Non-recurring Expenses. and (ii) Recurring Expenses. 1
I

i ) NOH-recurring Expenses :AH tlie expenses which art: incurred for bringing goads to tire
gudawn ol'the consignee rlre aon-recurring in nature. Sucll expenses arc generally incurred
on the consigtiment as a whole, The non-recurring expenses will be incurrbd partly by the
consignor and partly by tlie consignee.

The ~onsighot* ~~suallyirlcurv expenses on sendirlg the go6ds:to the consignee such as
packlng, cartage, londing charges, insuranc-e,freight, ctc. The consignee usually incurs
1
expenses otl receiving the goods from the consignee such :IS dock dues, customs tluty,
clearing charges, octroi, etc.

11) Rekdrring Expensea :These expenses are incurred after the goods have reached the
consignee's place or godown. They are recurring in nature becouse they muy be incurred
repeatedly by the consignor nnd the consignee. The examples of recurring expenses incurred ,
by the consignor are: advertising, discount on hills, commission on collection of cheques,
tr;\velling,expenses of salesmen. bad debts etc. The examples of recurring expenses incurred
by tlie consigrlee are godown rent: godown insurance, sales promotion, etc.
 Consignment Accounts I
Advance : It is a common trade practice Tor the coilsigrlor to de~tlarldsomc advance from
the consignee as a security for the goods despatched lo him. It may be in the fiim of cash or
bank drafr or in the form of a bill of exchange. The consignee will send soiae amount as an
advance before or after he receives the goods from the consignor. The advance received
from the consignee should not be credited to consignlnent account as it is not a part of the
sale proceeds. The advance will be adjusted against the alnourlt due from the consignee
when the accounts are finally settled. In some cases, a bill may be drawn on the consignee if
he is not in a position to pay advance money. Thc consignor can discount the bill with his
bankers. In such a case ihe value of the hill (as advance) so accepted will be deducted from
,,(he sale proceeds. The discount paid to the bank can be straight away charged to the Profit &
Loss Account as it represent cost of raising finance.
I
Check Your Progress B

1 Distinguish between Account Sales and Sales Account?

2 Under what circumstances can the consignee get a special commission'?

3 Fill in the blanks :

i) E. & O.E. stands f ~ ....... r :......
ii) Consignor allows .............Commission to the consignee to bear the bad debts.
iii) ............. expenses are those expenses which arc incurred after the goods reach the
consignee's godown.
iv) The consignee gives advance to the consignor as a ............... for goods despatched.
v) Unloading charges paid by the consignee are ................ expenses.

10.3 ACCOUNTING TREATMENT

The transactions relating to each consignment are recorded in such a way that the profit or
loss of each consignment can be worked out separately. For this purpose the consignor
prepares a Consig~imentAccount rclating to each consignrnent to which all concerned
expenses including the cost of goods consigned ale dcbited and the sales proceeds and the
closing stock are credited. In addition, he i~lsomaintain a cunsignee's account in order to
bompute the amount due from him. The consignee, on the c,tllcr hand, simply maintains
consignor's account in his books to which he debits the amounts remitted to the coiislgnor
.
the expenses incurred by hinl in relation to the consiglln~entand the commission due to him.
'
Consignor's Account is credited mainly by Ihe amount ol'sale proceeds. Now let us study
how various transactions related to consignrnent are recordetl in the books of the consignor
and the consignee.

10.3.1 Books of the Consignor

~ b know
u each transaction is recorilod first in n salraidiarj~houk a1d then posted to tllc
respective accounts in thc letlger. All tK\nsactionsrelated to consignlnent therefore, are first
recorded in the Jour~lal.'I'l~e entrics llossed in respect oS various trullsaction are as follows:
Goods clespatchcd to the consignee: As you know rhe consignmen1 of goods cannot
be treated as a sale of goods. I'hwclorc, Sales ~'lcc[wntwill 1101be credited. In its place.
will tic credited and the
an account callccl 'Goods sent ~ ~ n s i g n m cAccou~it
nt
Consignment Account is dehitcd wit11 tht: cost of the fronds ;unsigned'. Thus the
journal entry will be as follows:
Cansignment.end . Consignment A/c Dr.
Joint Venture To Goods Sent on Consignment Alc I

(Being the value of the consignment) i

I
If consignments have been sent to more than one consignee, the consignment accounts
may be distinguished by adding the names of the places to the Consignment Account.
(For example Consignment to Calcutta Account, Consignment to Gonda Account, etc.)

2 Expenses incurred by the consignor : All expenses incurred by the consignor on

consignment of goods are debited to the Consignment Account and are thus added to
cost of goods consigned. The entry would be:
Consignment A/c Dr.
To Cash I Bank Alc
(Being the expenses incurred on the consignment)

3 Advance made by the consignee : The amount of advance received from the
consignee cannot be treated as sale proceeds, and so should not be credited to the
Consignment Account. It is treated as follows.
I

Cash/Bank/Bills Receivable A/c Dr.

To Cons~gnee'sAlc
(Being an advance from the consignee)

4. Bill received from the consignee discounted with the bank : If the consignor gets
the bills receivable discounted from his bankers, the entry will be :
Bank A/c Dr.
Discount A/c Dr.
To Bills Receivable A/c
(Being bill discounted with the bank)

Re'celpt of account sales from the consignee : When the goods are sold out, the
cortsignee will send an Account Sales to the consignor intimating him the total sales
and the amount of his expenses and commission. The following three entries will be
recorded in this connection
a) For sales made by the consignee :
Consignee's A/c Dr.
To Consignment A/c
(Being gross proceeds of sales)
b) For consignee's expenfies:
Cbnsignment A/c Dr.
To Consignee's Alc '

(Being expenses incurred by the consignee in dealing with

consignment)

C) For consignee's commlasion:

Consignment A/c Dr.
To Consignee's AJc
(Being c~mmissionpayable on sale proceeds)

G Goods rethrhed by the consignee: Sometimes defective or obsolete goods are

returned by the consignee to the consignor. When such goods are received, the journal
I
entry will be :
Goods Sent an Consignment Alc Dr.
To Consignment A/c
(Being goods returned by the consignee)
1

7 Brd debts ineurrrd: When the consignee is entitled to del credrc commission no
fot $ad debts is to be passed as sirch loss is to be borne by the consignee himself.
when del credre'commission is riot paid, the loss on.account of bad debts is to be
by the consignor, the entry kill be: . I

I
 Consignment Alc Dr. Conslgnrnent Accounts I
To Consignee's A/c
(Being value of bad debts)

8 Remittance by the consignee in full settlement: The balance amount will have to be
remitted by the consignee to the consignor on settlement of the account. The following
elltry will be recorded, when the consignee remits to the consignor:
Cash/Bank/Bills Receivable A/c Dr,
To Consignee's A/c
(Being balance due from the consignee rece-ived).

9 Profit or loss on consignment: When you balance the Consignment Account, it

reveals profit or loss. If the total of credit side is more than the total of debit side it is a
profit and if the total of debit side is more than that of the credit side, it is a loss. The
profit or loss is transferred to the Profit & Loss Account and thus the Consignment
Account is closed.
The following entries will be recorded:
a) If there is a profit:
Consignment A/c Dr.
To Profit & Loss Alc
(Being profit on consignment)

b) If there is loss:
Profit & Loss A/c Dr.
To Consignment A/c
(Being loss on consignment)

10 Closing entry for goods sent on consignment : Goods sent on Consignment Account
is closed by transfer to the Trading Account. The entry passed is as follows:
Goods Sent on Consignment A/c Dr.
To Trading A/c
(Being goods sent on consignment
account closed)

11 Unsold stock with the consignee: It is quite possible that all the goods sent on
consignment are not s ~ l by
d the consignee up to the date on which final accounts are
prepared.' Some goods may remain unsold known as the consignment stock. This
.;.I should be properly valued and credited to the Consignment Account. Ybu will learn
about the valuation of unsold stock in unit 11. However, the entry for consignment
stock will be
Consignment Stock A/c Dr.
To Consignment A/c
(Being unsold goods with the consignee)

You have learnt how to record consignment transactions in the Journal of the consignor.
Now let us see how various accounts effected are shown in the ledger and how profit or loss
on consignment is worked out. The consignor usually maintains the following three
accounts:
1 Consignment Account: It is prepared by the consignor showing all transactions relating
, to a particular consignment. The objective of this accolnnt is to-ascertain net profitlloss
arising from each consignment. Once goods are consigned by the consignor, its cost is
debited to the Consignment Account alongwith various expenses incurred by the consignor
bnd the consignee in dealing with that particular consignment. The commission due to the ,
'I
consignee is also debited to the Consignment Account. When Del Credre commission:is not
paid, the bad debts, if any, are also to be debited to this account. Once the goods reach the
corlsignee some of these will be unsold and the rest sold either on cash or on credit,
Irrespective of the type of sale, the entire sale pr~ceedswill be shown on the credit side of
Consignment and the Consignment Account. The unsold goods are heated as consignmen1 stock and credited
Joint Venture to this Account. If same goods are found unsuitable for sale, the consignee will send them
back to the consignor and the same will appear on the its credit side. After all these items are
recorded, the Consignment Account is balanced. The difference between the debit and credit
totals of Consignment Account is regarded as profit or loss which is transferred to the Profit
aild Loss Account and the Consignment Account stands closed. It is infact a nominal
account and is just like Trading and Profit and Loss Account about which you have studied
earlier in final accounts. Therefore, the principles applied to Trading and Profit & Loss
Account hold good for this account also. Like Trading and Profit & Loss Account all
expenses and purchabes are debited to this account and all salesand incomes are credited.
The proforma of the consignment account is given in Figure 10.2.

Figure 10.2
Consignment to Patnn Account
Dr. , - Cr.
--
a - P Z c u l a r s T-AioZ-T-DlltL I ~artlculdrs T Z -
Ks. Rs.
To Goads Sent on By Consignee's A/c
Consignment A/c XXX (Cash and Credit sales). XXX

To Casli A/c
(Consignor's Expenses) XXX Ry Goods Sent on
Consignment A/c XXX
(Gootls returned by
the Consignee)
To Consignee's A/c
(Consignee's Expenses) XXX

To Consignee's A/c By Consignment Stock A/c XXX

(Conimission) XXX (linsold Stock) XXX

T(>Consignee's hlc XXX XXX

(I3atl Dcbts if any)
To Profit ;~rrdLoss A/c
(Profit transferred)

-f XXXX
--
---
-.--
XXX
- -----

2 Goods Sent on Consignment Account: This is a real account. It deals with the goods
transferred from the consignor to the consignee and goods returned by the consignee to the
XXXX

consignor. All the goods consigned by the consignor will be credited lo this account and the
goods rett~medby the consignee are debited to this account. The biilance represent? the cost
of goods with consignee for snle, and is transferred to the Trading Account. The profonnn of
the Gorrds Sent on Consignment Account is depicted in Figure 10.3

Figure 10.3
Goads Sent on Consignment Account
Dr. Cr.
- - --- - ---- -
Dalc Partic~~lars Amount

To Contignment A/c By ('on~,cnn~cntA/c

1 (Good) ~'e~umed) (Gvotls cons~gned)

. To Trad~ngAIL!
(Balimce transferred) -- -
I ----
xxx
1.-
3 Consignee's Account: Tt is a personal account of the consignee. It is prepared for
ascertaining the amount due from the consignee. The consignee's account is debited with all
cash and credit sales effected by the consignee. 'The various expenses incurred hy the
consignee, the comnlission charged by him as well as the-advance remitted by him are
credited to this account. This account usually shows a debit hilkmce indicating the amount
due from the consignee. At times it may show credit balance, if the :idv:ince given by the
consignee is more than the sale affected by him. The balance revealed by this accolunt is
shown in the balance sheetof the consignor, debit balance on the asscls side, and c r e d i ~
balance on the liabilities side, unless the account is settled by the required remittance. Figure Consignment Accounts 1
10.4 shows the proforma of Consignee's Account.
Figure 10.4
Consignee's Account
Dr. Cr.
Amount Date Particulars

To Consignment A k xxx By Casli/Bank/Bills

(Cash and Credit Sales) Receivable A/c
(Advance) xxx

I I '1 By Consignment A/c

(Consignee's Expenses)
By Consignment A/c
(Consignee's Commission)
I
By Banks A/c or
Balance c/d

Look at Illustration 3 and see how various transactions relating to consignment are recorded
in the books of the consignor

Illustration 3
Bush Radio 4 Co,, Delhi sent on consignment to Chadda & Co., Calcutta LOO radio sets,
invoiced at Rs. 100 each on January 6, 1986. Bush Radio & Co. paid Rs. 1,000 on the same
day for despatching goods to the consignee. Consignee remitted Rs. 5,000 as an advance by
bank draft on January 14. The consignee is entitled to a commission of 108 on the sale
proceeds. On receipt of goods the consignee paid Rs. 1,000 for freight and Rs. 500 for
godown charges.
On January 28, Chadda & Co. sent an Account Sales showing that the radio sets have
realised Rs. 200 each. He remits the amount due to Bush Radio & Co. Pass Journal entries
and prepare ledger accounts in the books of the consignor.

Books of Bush Radio & Co., Delhl

JOURNAL
I w Dr. Cr.
Date Particulars L.F. Amount Amount
1986 Rs. Rs.
JM. 6
I Consignment to Calcutta A/c
To Goods Sent on Consignment A/c
(Being cost of consignment sent
10,000

to Chrdda Rr Co.)
Consignment to Calcutta A/c 1.000
To Bank Alc
(Being expenditure incurred
I on despatching of goods) I
I Bank Alc
To Chadda & Co.
(Being receipt of an advnnce
5,000

payment from the col~signce)

-
Consignment to Calcutta A/c Dr. 1500
T o Chadda Rc Co.
(Being expenses pnid by the consignee)
Chadda & Co. , Dr. 20,000
To Coosignment to Calcutta Alc
(Being the gross proceeds of
sales made by tho consignee)
Consignment to Calcutta A/c Dr. 2,000
To Chadda & Co.
(Being commission payable on
sale proceeds)
 Consignment and Jan. 3 1 Bank A/c Dr. '

. Joint Venture To Chadda & Co.

(Being balance payment received
from the consignee)
Consignment to Calcutta A/c
To Profit & Loss A/c
(Being Prof1t on consignment
aansferred to Profit & Loss Account)
I
Goods Sent on Consignment A/c
To Trading Nc
(Being goods sent on consignment
transferred to Trading Account)

LEDGER
Consignment to Calcutta Account
Dr. Cr.
Date 1 Particulars 1 Amount .) Date 1 Particulars 1 Amount
1986 Rs.

I
Jan.6 To Goods Sent 10,000 Jan, 28 By Chadda & Co. 20,000
on Consignment N c
To Bank A/c
(Consignor's Expenses)
To Chadha & Co 1,500
(Consignee's Expenses)
To Chadha & Co
(Consignee's Commission)
To Profit Br Loss Alc . 5,500
(Profit transferred)
20,000

Goods Sent on Consignment Account

R ~ , 1986 By Consignment to Rs
Calcutta A/c 10,000

Chadha & Co's Account

1986 To Consignment to By Bank Alc

Rs.
5,000
I
i
"Jan. 28 I
Calcutta A/c (Sale Proceeds) (Advance)
By Consignment to 1,500
Calcutta Alc (Expenses)
By Consignment to 2,000 I

Cilcutta A/c (Commissic)n)

By Bank A/c 1 1.500
(Balance received)

,-EGi- I,
10.3.2 Books of the Consignee
The Consignee mainly prepares a consignor's account in his books to find out what is finally
due to the consignor. He records all transactions relating to the consignment first in the
Journal and then posts them tb-the relevant accounts (including Consignor's Account) in the
ledger. The journal entries passed by the consignee are:

1 Receipt of goods from the ionsignor: No entry is passed by the consignee when he
receives goods from the consignor because re~eipt~ofgoods on consignment.does not
'
amount to purchases of goods by him. He kwps them in his godown on behalf of the
consignor for which he usually maintains an Inwards Consignment Book.

2 Expenses incurred by the consignor: No entry is passed by the consig'nee.

I
 Consignment Accounts 1
3 Advance made by the consignee .
Consignor's A/c '. Dr.
To BankIBills Payable A/c
(Beigg advance made by the consignee)

4 J'
Bill discounted by the consignor with the bank: No entry is passed by consignee.

5 Sale of goods by the consignee

Cash A/c (cash sales) Dr.
Consignment Debtors Alc Dr.
' (Credit sales) .
To Consignor's Alc .
(Being goods sold)

6 Expenses incurred by the Consignw: Being an agent of the consignor, all legitimate
expenses incurred by the consignee related to the consignment are to be reimbursed by
the consignor, the entry will be:
Consignor's A/c Dr.
To Cashmank A/c
(Being expenses incurred on consignment)

7' Commission due to the consignee: This should include all types of commissions due
to the consignee: The entry will be
Consignor's A/c Dr.
To Commission A/c
(Being commission due on sales)

8 Return of goods to the consignor: No entry will be passed in the books of the
consignee as no entry was passed at the time of receipt of the goods.

9 Payment received from debtors

CashfBank A/c Dr.
To Consignment Debtors A/c
(Being amount collected from debtors)

10 Bad debts incurred

a) .If consignee does not get del credre commission all bad debts have to be borne by
the consignor himsel'f. The entry will be.
Consignor's A/c Dr.
To Consignment Debtors A/c
, (Being bad debts on consignment)

b) If del credre commission is paid to the consignee, the bad debts are to be borne by
him. The entry will be:
Bad D&btsA/c Dr.
To Consignment Debtors A/c
(Being bad debts incurred on consignment)

11 When the bills payable accepted in favour of consignor is met on the due date:
Bills Payable A/c Dr.
To Bank A/c
(Being bills payable honoured)

12 Remittance In final settlement p

Consignor's A/c Dr.

To CashfBank Account
To Bills Receivable Account
(Being payment of the balance due to the consignor)
Consignment and 13 Unsold stock in possession of the consignee: No entry will be passed for unsold
Joint Venture
goods in the books of the consignee as no entry is passed when he received goods
from the consignor.

14 Profit or Loss on consignment: No entry is passed for profit or loss on consigl~ment

as the consignee is not concerned with it.
The Consignee also prepares ledger accounts after passing all the journal entries. The
Consignor's Account and Commission Account are the two important accounts prepared by -.
the consignee in his books. Of course, he will also do the postings to the other accounts such
as Consignment Debtor's Account, Consignment Expenses Account and Bills payable
. Account, etc. ~ uthese
t are of less importance, hence not discussed here.
I Consignor's Personal Account: This is the main account in Consignee's ledger which
is prepared for working out the amount due to the consignor. Whatever amount he

,
receives from sales of goods is credited to this account. All expenses incurred by the
consignee in relation to consignment, the co~nmissiondue to him, and the advance given
by him to the consignor will be debited to this account. Furrher, if the consignee does not.
get del credre cornmission, the bad debts on account of credit sales are also debited to
the Consignor's Account. The balance of this account indicates the amount payable to
the consig~lor.This account is just the opposite of the Consignee's Account in the books
of the consignor. The profonna of the Consignor's Account is given in Figure 10.5

Figure 10,s
Personal Account
Co~~signor's
Dr. Cr.
I- --If-- -

PWIICUIWS ~ a t c ParticuIars

To BilnWCash A/c By Bank A/c

(Consignee's Expenses)
To Bnnk/Bills Payable A/c 1 xxx I 1 (Cash Sales)
~y Consignment A/C

I
(Advance)
To Commission A/c
(Consignee's Commission)
1 xxx I I ,
(Credit Sales)
BY an& A/C (~3alanc.e.
rcnlitted)

2 Commission Account: This is nominal account. It shows the income earned by the
consignee for the services rendered by him. All types of co~nmissionwhether, ordinary
or special, due to the consignea is credited to this account. The Commission Account
will be debited with had debts if the consignee is to bear such loss because of del credre
commission. The profoma of the commission Account is given in Figure 10.6

Figure 10.6
Co~nmissiunAccount
Dr. Cr.

TO Bad Debts Nc By Consignor's N c

(Consignee's Commission)
To Profit & Loss A/c

-- --
Taking the data of illustration 3 Iet us see how transaction related to consignment will be
recorded in the books of the consignee,
 Books of Chadha & Co. Consignment Accounls I
JOURNAL

Dr. Cr.
Date Particulars ' I
I
L.F. Amount Amount
1986 Rs. Rs.
Jan. 14 Bush & Co. Dr. 5 ,000
To Bank A/c
(Being advance paid by the consignee)
Bush Br Co. Dr.
To Cash/Bark/A/c
(Being expenses incurred on consignment)
-
Bank A/c Dr.
To Bush & Co.
(Being cash sales on consignment)
" 28 Bush & Co.
To Commission A/c Dr.
I
--
(Behlg commission due on g d s sold) 1
" 31 Bush & Co. Dr.
To Bank A/c
(Being balance payment made)

LEDGERS
Bush & CopsAccount
Dr. Cr.
Date Partkulors A, ~ o u n t Date Particulars Amount
- -
Rs. 1986 Rs.
Jan. 14 To Bank A/c 1,500 Jan. 31 By Bank A/c (Sales) 20,000
" 14 To Bank A/c (Advance) 5,000
" 14 To Commission A/c 2,000
" 14 To Bank A/c (Balance) 11,500
20,000 20,000

Commission Account

1986
Jan, 31 To profit & Loss N c 1 2~ I I By l u s h a co.
Rs.

. m

Check Your Progress C

1 Fill in the blanks.
. i) All expenses incurred by the consignee are to Consignment Account...............
ii) When the defective goods are returned by the consignee, the consignor debits it to
.........,.Account.
iii) When there is no del credre commission, bad debts ate borne by the ...........
iv) Consignment Account is similar to .......... Account.
V) Consignee passes ........ entry for closing stock.
. vi) Commission Account is a .....,.....Account.
2 Explain why the consignee does not pass any entry for
a) Goods sent on Consignment
b) Profit or loss on consignment, and
C) Closing stock.
I................. '................................................................+...........................................................
 v--
,Consignment and
Joint Venture 10.41 LET US SUM LIP

Consignment is a kind of arrangement where the manufacturer or a trader sends goods to his
agents for sale to small traders or consumers. The agents sell goods on behalf of the
manufacturer or the trader. The person who sends the goods is called the consignor and the
person to whom the goods are sent is called the consignee. The relationship between the
consignor and the consignee is that of a principal and an agent.
While sending goods to the consignee, the consignor sends a proforma invoice which gives
full details about the goods consigned. After the goods have been sold, the consignee
prepares an Accouht Sales, giving full details about the number of units sold, the price at
which they have been sold, and the expenses and commission due to him.
The consignee is entitled to commission for the services rendered to the consignor. The
commission can be ordinary or special commission.
In order to work out the profit or loss on each consignment and the amount due from each
consignee, the consi.gnor prepares Consignment Account, Goods Sent on Consignment
Account and Consignee's Personal Account in his ledger for each consignment. The
consignee, on the other hand, mainly prepares two accounts in his books viz., Commission
Account and Consignor's Persor~alAccount.
This helps him to know the amount due to the consignor and his income from commissions.

80.5
- KEY WORDS

i c c o u n t Sales: A statement submitted by the consignee to the consignor giving account of

the sale proceeds, details of various expenses incurred, and the commiision due to him.
Consigeee: A person to whom the goods are sent on consignmeat basis.
Consignment: Goods sent by a producer or a trader to his agents for sale on their behalf and
at their risk.
Consignor: A person who sends the goods to his agents on consignme~ltbasis.
Del Credre Commission: Commission paid by the consignor to the consig~ieefor bearing
the risk of bad debts arising out of credit sales made by him on behalf of the consignor.
Over-riding Commission: It is the commission over and above the normal com~nission
paid to the consignee for extra services provided by him or excess price realized by him.
Proforma Invoice: A statemmt prepared by the consignor and sent to the consignee giving
details of goods consigned.

10.6 SOME USEFUL BOOKS

Maheshwari, S.N. 1986. introduction to Accounting. Vikas Publishing House: New Delhi.
(Chapter 1 Section 11).
Patil, V.A. and J.S. Korlahalli. 1986. Ynnciples and Pructice of Accountin,q, R. Clland &
Co. : New Delhi. (Chapter 2).
William Pickles. 1982. Accaun~ancy,R.L,B.S. and Pitrnan: London. (Chapter 17),
Gupta, R.L. and M. Radhaswamy. 1986. Advanced Ac~~ounran~~y, Sultan Chand & Sons;
New Delhi (Chapter 15).

- ----- --- - -.
10.7 ANSWERS TO CHECK YOUR PROGRESS -

A 1 a ) i i b)i c)ii d)ii

2 ij False ii) Tme iii) True iv) False v) True
B 3 i) Errors and Omissions Excepted.
ii) Del Credre Commission iii) Recuning iv) security
v') Non-recurring
 C~jnsignmentAccnunts .I
C 1 i) debited ii) Goods Sent on Consignment
iii) Consignor iv) Trading and Profit & Loss Account.
0
v) no vi) nominal '

10.8
- TERMINAL QUESTPONSIEXERCISES

Questions
1 "Consignment is the same thing as sale". Discuss.
2 What is an 'account sales'? How do yooprepare it? State how it is useful to the
consignor?
3 Distinguish between
a) Non-recurring and Recurring Expenses
b) Ordinary Commission and Del Credre Commission
C) Account Sales and invoice

Exercises:
1 'X' & Co. Bombay consigned 250 Weston T.V. sets to 'Y' & Co. Banglore. Each T.V.
set costs Rs. 7,500. Y & Co. received the consignment and sold the sets as follows:
160 T.V. sets at Rs. 9;000 each on cash basis and
90 T.V. sets at ks. 10,500 each on credit basis
. The consignor allowed 5% normal commission and 2-112% del credre commission to
the consignee on the sales effected by him. Compute total commission due to Y & Co.
(Answer: Normal Commission Rs. 1,19,250; Del Credre Commission Rs. 59,625)
2 Harish & Co. Lucknow, consigned goods valued at Us. 1,25,000 to Dinesh Entelpriscs.
Ahmedabad. Harish paid Rs. 1,800 towards freight, insurance and carriage, Dinesh
received the consignment and accepted a bill for Rs. 50,000. He paid Rs. 1,500for
friight, Rs. 2,200 for carriage and godown rent, and Rs. 2,500 as salesman's salaries.
The consignee is allowed to take 7% commission on the total sales. Consignee sold all
goods for Rs. 1,68,000. Balance owed by Dinesh was remitted by a bank draft. Prepare
an Account Sales.
(Answer: Balance due from the consignee: Rs. 1,00,040)
3 On January 1, 1987 Gopal Enterprises, Hyderabad, sent 50 radio sets to Rakesh & Co.,
Bombay invoiced at Rs. 1,200 per set and incurred the following expenses in relation to
the consignment: dock dues Rs.2,000; customs duty Rs.1,000 and frieght Rs.2,3QO.
Rakes11 & Co. remitted Rs.20,000 by bank draft on January 5, 1987. It sold all the sets
at Rs 1,500 each by Janua~y31, 1987 and incurred Rs. 2,500 as godown rent.
Commission is allowed at 5% on sales, The consignee sent the Account sale and
enclosed a bank draft for the balance.
Journalise the above transaction in the books of the Consignor and the Consignee. Also
prepare necessary ledger accounts and calculate the profit on consignment.
(Answer: Profit on consignment Rs. 3,450; Balance due from the consignee
Rs. 48,750)
4 Krishna of Bombay consigned goods costing Rs. 2,50,000 to Kajriwal of Jodhpur.
Krishna paid Rs. 1,500 for ~arriageand Rs. 5,250'for freight and insurance. Kajriwa! is
entitled to a commission of 5% on all sales in addition to 2% del credre commission.
Krishna draws on Kajriwal a bill for Rs. 80,000, payable two montbs after date, which
the latter accepts. The bill is discounted with the bank for Rs. 79,000. An Account sale
is received from Kajriwal stating that the goods had been sold for Rs. 3,1Q,000(Rs,
1;60,000 on credit and Rs. 1,50,000 for cash), while expenses incurred by him were:
unloading Rs. 1,250; gadown rent Rs. 2,500 insurance Rs. 500. A bank draft was
enclosed for the balance due. Kajriwal could not recover Rs. 2,500 from a customer to
whom goods were sold on credit.

.
Pass Journal entries in the books of the consignor and the consignee and prepare
necessary ledger accounts.
Consignment and
Joint Venture
Hints: .-
i) Discount will not be debited to consignment Account
ii) Bad Debts will be bome by the Consignee and debited to his commission
account.
iii) Del Credre commission is computed on total sales.
(Answer: Profit on consignment Rs. 27,300; Amount due from consignee Rs. 2,04,050.)

Note: These questions will help you to understand the unit better. Try to write answers
for them. But d o not submit your answers to the University. These are for your
practice only.
UNIT 11 CONSIGNMENT ACCOUNTS-I1

Objectives
Introduction
Direct Recording in the Ledger
Unsold Stock
11 -3.1 Valuation of Unsold Stock
11.3.2 Accounting Treatment of Unsold Stock
Loss of Goods
1 1.4.1 Normal Loss
11.4.2 Abnormal Loss
11.4.3 Where Normal and Abnormal Losses Occur Simultaneously
Let Us Sum Up
Key Words
Some Useful Books
Answers to Check Your Progress
Terminal Questions / Exercises

11.0 OBJECTTVES

After studying this unit you should be able to:

record consignment transactions direchy in the ledger accounts of the consignor and the
consignee
@ compute the value of unsold stock
@ explain the nature of normal and abnormal losses
:@ compute the value of unsold goods in case of normal loss
explain the treatment of normal and abnormal losses of goods and their impact on profit.

.11.1 INTRODUCTION

In Unit 10 you leamt about the basic accounting framework relating to the goods sent on -
cohsignment basis+i.e., the entries to be passed in the books of consignor and the consignee.
You know the method of working out the profit on each consignment when all goods are
sold out. In practice you will find that at the time of submitting the Account Sales, some
goads may remain unsold. Then, there is also a possibility of loss while the goods are in
transit or while they are lying in the goitown of the consignee. Such loss may occur due to
normal or abnormal causes. In this unit you will learn how the value of unsold goods is
worked out and recorded in books of account. You will also learn about the treawent of
normal and abnormal losses which may take place in transit or in the godown of the
consignee and their impact on valuation of stock and the profit on consignment.

11.2 DIRECT RECORDING IN THE LEDGER

You know for each consignment the consignor prepares the consignment Account, the
Goods Sent on Consignment Account and the Consignee's Account in his books, whereas
the consignee prepares the Consignor's Account and the Commission Account in his books.
In U-nit 10 you Ieamt that all transactions relating to consignment are first recorded in the
Journal and then posted into the above mentioned ledger accounts. Sometimes, you may be,
asked to prepare the ledger accounts directly i.e., without passing any journal entries. You
should therefore learn how to prepare these accounts directly.
You should debit the Consignment Accountswith the cost of goads consigned, expenses 23