2 Consignment Goods Consignee Consignor (Agent) (Owner of the goods) Consignment accountGoods sent onConsignee accountGoodsNet proceeds+Account salesConsignee(Agent)Consignor account
3 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.
4 ConsignorThe owner of the goods who sends the goods to an agent for sale.ConsigneeWho 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.
5 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.
6 Consignor’s Books Consignment account It is a profit and loss account for the consignment.Consignment AccountExpensesIncome
7 2. Consignee account Consignee Account Amount owing form consignee e.g. SalesAmount owing to consigneee.g. Expenses, commission
8 3. Goods sent on consignment account Transferring to trading accountCost of goods sent
9 4. Summary of procedures Transactions Double entries 1. Goods sent on consignmentDr ConsignmentCr Goods sent on consignment2. Expenses incurred by the consignor.Cr Bank3. Expenses incurred by the consignee and the commission payable to the consignee.Cr Consignee4. Sales recorded on the account salesDr ConsigneeCr Consignment
10 6. Insurance claim received for normal stock loss Dr Bank 5. Normal lossNormal loss of stock of the consignment which was not insured. (Normal loss: damaged stock, obsolete stock)No entry6. Insurance claim received for normal stock lossDr BankCr ConsignmentAbnormal lossAbnormal stock loss credited to consignment account. (Abnormal loss: fire loss, burglary loss, stolen in transit)Dr Bank/Insurance companyDr Profit and LossCr Consignment(Total loss)8. Payment from the consignee by cheque or billDr Bank/Bills receivableCr Consignee9. Cost of goods sent on consignment credited to trading account.Dr Goods sent on consignmentCr Trading account10. Profit on the consignment is transferred to the profit and loss account. (Reverse the entries if it is a loss.)Dr ConsignmentCr Profit and loss
11 Goods sent on consignment account $Trading x$Consignment x
12 Consignment $ Goods sent on consignment x Banks-consignor’s expenses x Consignee- consignee’sexpenses xconsignee’scommission xP & L-profit on consignment xx$4. Consignee-sales x6. Bank/Insurance Co.-claim x7. Profit and Loss-net stock loss x_x
13 Consignee $ Consignment-sales x _ x $ 3. Consignment-consignee’s expenses xconsignee’scommission x8. Bank-settlement fromconsignee xx
15 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 ConsignmentCr Consignee
16 Consignment Consignee $ Consignee-bad debts x $ Consignment-bad debts x
17 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.
18 Accounting entries in the books of the consignee Dr Bad debtsCr Debtors(with the bad debts borne by the consignee personally)
19 Valuation of stockIf 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.
20 Consignment $ Year 1 x Year 2 Balance b/d x $ Year 1 Balance c/d – value of unsoldstock xx
21 Valuation of stock= Consignor’s Cost +Consignee’s Expenses
22 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
23 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.
31 Consignee’s booksA 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.
32 Summary of procedures Transactions Double entries 1. Goods received form consignor.No entry2. Expenses paid by the consignor.3. Commission received (ordinary and del credere commission).Dr ConsignorCr Commission Received4. Expenses paid on behalf of the consignor.Cr Bank5. Discounts allowed to customers/Cr Debtors
33 6. Bad debts borne by the consignor. Dr ConsignorCr DebtorsBad debts borne by the consignee personally. (When the consignee receives a del credere commission, he should bear all losses from bad debts)Dr Profit and Loss/Bad Debt8. Cash salesDr Bank/CashCr Consignor9. Credit salesDr Debtors10. Payment to the consignor by cheque or billCr Bank/Bill payable
34 Consignor Account $ Bank – consignee’s expenses x Commission Received x- ordinary x- del credere xDebtors – dis. allowed xDebtors – bad debts xBank / Bill payable – to consignor xx$Bank – sales xDebtors – sales x_x
35 Tang – Consignor Account ExampleThe facts are the same as in the pervious example, but thetransaction would be shown in the books of consignee.In Chan’s BooksTang – Consignor Account$$Bank -port charges-delivery changes towarehouse ,280-advertising ,000-delivery charges tocustomersDebtor – sales (500 x $100) ,000Bank – sales (440 x $100) ,000Commission Receivedordinary ,700Del credereBank – to consignor ,60094,00094,000
37 Consignments and the Final Accounts The accounts related to a consignment would be disclosed in the final accounts as follows:
38 Trading and Profit and Loss Account In Consignor’s BookTrading and Profit and Loss Account$$$Opening Stock NAdd Purchases TLess Goods on Consignment C NNLess Closing Stock NCost of Goods Sold NGross Profit NExpenses NStock Loss of Consignment CNet Profit TSales NNGross Profit NConsignment Profit CTTN=figure from normal trading; C=figure from ConsignmentT= Total figures
39 Balance Sheet (Extract) $$Current AssetsStock (N+C) TConsignee Account(if it is a debit balance) CCurrent LiabilitiesConsignee Account(if it is a credit balance) COR
40 Trading and Profit and Loss Account In Consignee’s Book The only entries needed is for the commission received.Trading and Profit and Loss Account$$$Opening Stock NPurchases NNLess Closing Stock NCost of Goods Sold NGross Profit NExpenses NBad Debts NBad Debts (If he has received a delcredere commission, he will bear theConsignment’s bad debts) CNet Profit TSales NNGross Profit NCommission Received(from consignor) CTT
41 Balance Sheet (Extract) $$Current AssetsStock NConsignor Account(if it is a debit balance) CCurrent LiabilitiesConsignor Account(if it is a credit balance) COR
42 Consignments and Joint Ventures: If the party to a joint venture sends some goods to an agent for sale, the transactions will be entered as follows:No consignment account is opened If no consignment account is kept, all the transactions of the consignements should be recorded in the foint venture account.A consignemnt account is opened
43 (i) No consignment account is opened Joint Venture Account$$Bank – joint venture expenses XBank – consignment expensesincurred by the consignor XConsignee – consignment expensesincurred by the consignee XProfit and Loss – share of profit XBank – settlement XBank – joint venture sales XConsignee – consignment sales XStock c/d – unsold stock of jointventure and consignment XXX
45 (ii) A consignment account is opened Joint Venture Account$$Bank – joint venture expenses XProfit and Loss – share of profit XBank – settlement XBank – joint venture sales XGoods Sent on Consignment XConsignment – profit XStock c/d – unsold stock of jointventure only XXX
46 Consignment Account Sales – joint venture only X $$Goods Sent on Consignment XBank – expenses XConsignee – expenses XJoint Venture – consignment profit XSales – joint venture only XGoods Sent on Consignment XConsignment – profit XStock c/d – joint venture only XXX
47 Memorandum Joint Venture Account $$Expenses – joint venture only XShare of Profit:A XB X XSales – joint venture only XGoods Sent on Consignment XConsignment – profit XStock c/d – joint venture only XXX