Consignment is a system where one person sends the goods to another so that the latter can sell those goods on behalf of the person who sends it in the first place. Risk related to goods will be on the part of the consignor. Let us study the consignment account in detail.
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Parties in Consignment Account
There are two parties in a consignment.
- The person sending the goods is the consignor.
- The person receiving the goods is the consignee.
Here, we will deal with the Consignment Account.
Accounting treatment in the Books of Consignor
The relationship between consignor and consignee is that of the principal and the agent. So entire profit or loss belongs to the consignor and consignee receives the commission as his remuneration.
On the consignment of the goods, the consignor also sends a Performa invoice. When the consignee remits money, he sends Account sale to the consignor.
Source: istockphoto.com
Read about the Accounting Entries in books of Consignee here in detail.
Journal entries in the books of Consignor
Date | Particulars | Amount (Dr.) | Amount (Cr.) | |
1.Entry for sending goods | Consignment a/c | Dr. | xxxx | |
To Goods send on consignment a/c | xxxx | |||
(Being goods sent on the consignment basis) | ||||
2.Entry for consignor’s expenses | Consignment a/c
|
Dr. | xxxx | |
To Cash/Bank a/c | xxxx | |||
(Being expenses for consignment) | ||||
3.Entry for consignee’s expenses | Consignment a/c | Dr. | xxxx | |
To Consignee a/c | xxxx | |||
(Being expenses for consignment by consignee) | ||||
4.Entry for advance given by consignee | Cash/Bank/B.R. a/c | Dr. | xxxx | |
To Consignee a/c | xxxx | |||
(Being receipt of advance) | ||||
5.Entry for sales | Consignee a/c | Dr. | xxxx | |
To Consignment a/c | xxxx | |||
(Being sale of goods) | ||||
6.Entry for commission | Consignment a/c | Dr. | xxxx | |
To Consignee | xxxx | |||
(Being commission recorded) | ||||
7.Entry for collection from debtors | No Entry | |||
8.Entry for Bad Debts | ||||
(a)In the presence of Del-credre commission | No entry | |||
(b) In the absence of Del-credre commission | Consignment a/c
|
Dr. | xxxx | |
To Consignee a/c | xxxx | |||
(Being bad debts recorded) | ||||
9.Entry for the final profit | Consignment a/c | Dr. | xxxx | |
To Profit and loss a/c | xxxx | |||
(Being transfer of profit to P&L a/c) | ||||
10.Entry for final remittance | Bank a/c | Dr. | xxxx | |
To Consignee | xxxx | |||
(Being payment to consignee) | ||||
11. Entry for Balance in Goods sent a/c | Goods sent consignment a/c | Dr. | xxxx | |
To Trading a/c | xxxx | |||
(Being balance transferred to trading account) | ||||
12.Entry for the closing stock | Consignment stock a/c | Dr. | xxxx | |
To Consignment a/c | ||||
(Being closing stock transferred) |
Solved Question For You
Q. Ram sent on 1st April 2016 to Sham goods costing Rs. 100000 and spent Rs. 2000 on packing etc. On 3rd April 2016 Sham received the goods and sent his acceptance to Ram and given Rs.60000 as advance. Sham spent Rs.2000 on freight and cartage, Rs.1000 on godown rent and 600 on insurance. On 31st Dec 2016, he sends his account sales( along with the amount due to Sham) showing that the sale is of 4/5 of the goods for Rs.110000. The terms of the consignment entitle Sham to a commission of 10 %. One of the customers turned insolvent and could not pay Rs.1200 due to him. Show the necessary general entries in the books of the consignor. Also, prepare ledger accounts.
Ans.
Journal entries in the books of consignor
Date | Particulars | Amount (Dr.) | Amount (Cr.) | |
2016 | ||||
April 1 | Consignment to Sham a/c | Dr. | 100000 | |
To Goods send on consignment a/c | 100000 | |||
(Being goods sent on the consignment basis) | ||||
April 1 | Consignment to Sham a/c | Dr. | 2000 | |
To Cash/Bank a/c | 2000 | |||
(Being expenses on consignment) | ||||
April 3 | Bank a/c | Dr. | 60000 | |
To Sham | 60000 | |||
(Being receipt of advance) | ||||
Dec 31 | Sham a/c | Dr. | 110000 | |
To Consignment a/c | 110000 | |||
(Being sale of goods) | ||||
Dec 31 | Consignment to Sham a/c (4000+1000+600+1200) | Dr. | 6800 | |
To Sham a/c | 6800 | |||
(Being expenses incurred by Sham ) | ||||
Dec 31 | Consignment to Sham (10%on 110000) | Dr. | 11000 | |
Sham a/c | 11000 | |||
(Being commission recorded) | ||||
Dec 31 | Bank a/c | Dr. | 32200 | |
To Sham | 32200 | |||
(Being receipt of amount) | ||||
Dec 31 | Consignment Stock a/c (working note 1) | Dr. | 21200 | |
To Consignment to Sham a/c | 21200 | |||
(Being unsold stock recorded) | ||||
Dec 31 | Consignment to Sham a/c | Dr. | 11400 | |
To Profit and loss a/c | 11400 | |||
(Being profit) | ||||
Dec 31 | Goods sent on consignment a/c | Dr. | 100000 | |
To Trading a/c | 100000 | |||
(Being balance transferred to trading account) |
Ledgers Accounts
Consignment to Sham A/c
Date | Particulars | Amount | Date | Particulars | Amount | |
April 1 | To goods sent on consignment a/c | 100000 | Dec 31 | By Sham(sale proceeds) | 110000 | |
April 1 | To Bank(expenses) | 2000 | Dec 31 | By stock on consignment a/c | 21200 | |
Dec 31 | To Sham(expenses &bad debts) | 6800 | ||||
Dec 31 | To Sham(commission) | 11000 | ||||
Dec 31 | To P&L | 11400 | ||||
131200 | 131200 |
Goods sent on consignment A/c
Date | Particulars | Amount | Date | Particulars | Amount | |
Dec 31 | To Trading a/c | 100000 | Dec 31 | By consignment to Sham a/c | 10000 | |
100000 | 100000 |
Stock on consignment A/c
Date | Particulars | Amount | Date | Particulars | Amount | |
Dec 31 | To consignment to Sham a/c | 21200 | Dec 31 | By Balance c/d | 21200 |
Sham A/c
Date | Particulars | Amount | Date | Particulars | Amount | |
Dec 31 | To consignment to Sham a/c | 110000 | May 3 | By Bank | 60000 | |
Dec 31 | By consignment to sham a/c | 6800 | ||||
Dec 31 | By consignment to sham a/c | 11000 | ||||
Dec 31 | By Bank (Bal. Received) | 32200 | ||||
110000 | 110000 |
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