1. Consignment

2. Consignment Goods Consignee Consignor (Agent) (Owner of the goods)
Consignment account
Goods sent on
Consignee account
Goods
Net proceeds +
Account sales
Consignee
(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. Consignor
The owner of the goods who sends the goods to an agent for sale.
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.

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 Account
Expenses
Income

7. 2. Consignee account Consignee Account Amount owing form consignee
e.g. Sales
Amount owing to consignee
e.g. Expenses, commission

8. 3. Goods sent on consignment account
Transferring to trading account
Cost of goods sent

9. 4. Summary of procedures Transactions Double entries
1. Goods sent on consignment
Dr Consignment
Cr Goods sent on consignment
2. Expenses incurred by the consignor.
Cr Bank
3. Expenses incurred by the consignee and the commission payable to the consignee.
Cr Consignee
4. Sales recorded on the account sales
Dr Consignee
Cr Consignment

10. 6. Insurance claim received for normal stock loss Dr Bank
5. Normal loss
Normal loss of stock of the consignment which was not insured. (Normal loss: damaged stock, obsolete stock)
No entry
6. Insurance claim received for normal stock loss
Dr Bank
Cr Consignment
Abnormal loss
Abnormal stock loss credited to consignment account. (Abnormal loss: fire loss, burglary loss, stolen in transit)
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 transferred to the profit and loss account. (Reverse the entries if it is a loss.)
Dr Consignment
Cr 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’s
expenses x
consignee’s
commission x
P & L-profit on consignment x x $
4. Consignee-sales x
6. Bank/Insurance Co.-claim x
7. Profit and Loss-net stock loss x _ x

13. Consignee $ Consignment-sales x _ x $ 3. Consignment-consignee’s
expenses x
consignee’s
commission x
8. Bank-settlement from
consignee x x

14. Consignee $ Consignment-sales 18,000 ______ 18,000 $
Consignment-expenses ,400
-commission ,800
8. Bank ,800
18,000

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 Consignment
Cr 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 debts
Cr Debtors
(with the bad debts borne by the consignee personally)

19. 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.

20. Consignment $ Year 1 x Year 2 Balance b/d x $ Year 1
Balance c/d – value of unsold
stock x x

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.

24. Example

25. Consignment $ Goods on Consignment 60,000 Chan – sales 94,000
( )*$100
Bank - freight
- insurance
Chan – port charges
- delivery charges to warehouse 1,280
- advertising ,000
- delivery charges to customer
- dis. allowed
- ordinary com ,700
($94000*5%)
- del credere com
(50000*1%)

26. Workings Value of the stock loss (10 boxes)
= $607

27. Consignment $ Goods on Consignment 60,000 Chan – sales 94,000
( )*$100
Bank - freight
- insurance
Bank – claim
Profit and Loss – stock loss
( )
Chan – port charges
- delivery charges to warehouse 1,280
- advertising ,000
- delivery charges to customer
- dis. allowed
- ordinary com ,700
($94000*5%)
- del credere com
(50000*1%)

28. Workings
Value of the Closing Stock Consignor’s Cost: ($1,000 * $60 + $500 + $200) * 50/1, ,035 Consignee’s Expenses: ($700 + $1,280) * 50/ ,135

29. Consignment $ $ Goods on Consignment 60,000 Chan – sales 94,000
( )*$100
Bank - freight
- insurance
Bank – claim
Profit and Loss – stock loss
( )
Chan – port charges
- delivery charges to warehouse 1,280
- advertising ,000
- delivery charges to customer
- dis. allowed
- ordinary com ,700
($94000*5%)
- del credere com
(50000*1%)
Balance c/d ,135
Profit and Loss – Profit on
consignment ,642
97, ,742

30. Chan $ $ Consignment port charges 700 Consignment - sales 94,000
delivery changes to
warehouse ,280
advertising ,000
delivery charges to
customers
dis. allowed
ordinary com ,700
del credere com
Consignment - sales ,000
Bank ,600
94,000
94,000

31. 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.

32. Summary of procedures Transactions Double entries
1. Goods received form consignor.
No entry
2. Expenses paid by the consignor.
3. Commission received (ordinary and del credere commission).
Dr Consignor
Cr Commission Received
4. Expenses paid on behalf of the consignor.
Cr Bank
5. Discounts allowed to customers/
Cr Debtors

33. 6. Bad debts borne by the consignor.
Dr Consignor
Cr Debtors
Bad 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 Debt
8. Cash sales
Dr Bank/Cash
Cr Consignor
9. Credit sales
Dr Debtors
10. Payment to the consignor by cheque or bill
Cr Bank/Bill payable

34. Consignor Account $ Bank – consignee’s expenses x
Commission Received x
- ordinary x
- del credere x
Debtors – dis. allowed x
Debtors – bad debts x
Bank / Bill payable – to consignor x x $
Bank – sales x
Debtors – sales x _ x

35. Tang – Consignor Account
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 ,280
-advertising ,000
-delivery charges to
customers
Debtor – sales (500 x $100) ,000
Bank – sales (440 x $100) ,000
Commission Received
ordinary ,700
Del credere
Bank – to consignor ,600
94,000
94,000

36. Further Considerations

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 Book
Trading and Profit and Loss Account $ $ $
Opening Stock N
Add Purchases T
Less Goods on Consignment C N N
Less Closing Stock N
Cost of Goods Sold N
Gross Profit N
Expenses N
Stock Loss of Consignment C
Net Profit T
Sales N N
Gross Profit N
Consignment Profit C T T
N=figure from normal trading; C=figure from Consignment
T= Total figures

39. Balance Sheet (Extract)$ $
Current Assets
Stock (N+C) T
Consignee Account
(if it is a debit balance) C
Current Liabilities
Consignee Account
(if it is a credit balance) C OR

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 N
Purchases N N
Less Closing Stock N
Cost of Goods Sold N
Gross Profit N
Expenses N
Bad Debts N
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
Gross Profit N
Commission Received
(from consignor) C T T

41. Balance Sheet (Extract)$ $
Current Assets
Stock N
Consignor Account
(if it is a debit balance) C
Current Liabilities
Consignor Account
(if it is a credit balance) C OR

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 X
Bank – consignment expenses
incurred by the consignor X
Consignee – consignment expenses
incurred by the consignee X
Profit and Loss – share of profit X
Bank – settlement X
Bank – joint venture sales X
Consignee – consignment sales X
Stock c/d – unsold stock of joint
venture and consignment X X X

44. Memorandum Joint Venture Account$ $
Expenses – joint venture and
consignment X
Share of Profit:
A X
B X X
Sales – joint venture and
consignment X
Stock c/d – joint venture and
consignment X X X

45. (ii) A consignment account is opened
Joint Venture Account $ $
Bank – joint venture expenses X
Profit and Loss – share of profit X
Bank – settlement X
Bank – joint venture sales X
Goods Sent on Consignment X
Consignment – profit X
Stock c/d – unsold stock of joint
venture only X X X

46. Consignment Account Sales – joint venture only X$ $
Goods Sent on Consignment X
Bank – expenses X
Consignee – expenses X
Joint Venture – consignment profit X
Sales – joint venture only X
Goods Sent on Consignment X
Consignment – profit X
Stock c/d – joint venture only X X X

47. Memorandum Joint Venture Account$ $
Expenses – joint venture only X
Share of Profit:
A X
B X X
Sales – joint venture only X
Goods Sent on Consignment X
Consignment – profit X
Stock c/d – joint venture only X X X