Accounting

Accounting Treatment of Consignment

Accounting Treatment of Consignment

Accounting Treatment of Consignment

A consignment is a special agreement for the sale of goods from the consignor to the consignee. Consignment occurs when goods are sent by their owner (the consignor) to an agent (the consignee), who undertakes to sell the goods. A consignment account is a combined form of trading and profit and loss account solely to the concerned consignment. When the consignor sends goods to the consignee, there is no need to create an accounting entry related to the physical movement of goods. It can be treated as a nominal account. It is usually sufficient to record the change in location within the inventory record-keeping system of the consignor. An independent consignment account for each and consignment to the name of place or consignee is to be prepared in order to ascertain the profit or loss from that consignment. When the consignee eventually sells the consigned goods, it pays the consignor a prearranged sale amount. Depending upon the arrangement with the consignee, the consignor may pay a commission to the consignee for making the sale. Risk related to goods will be on the part of the consignor.

In order to keep a complete record of consignment transactions, the consignor maintains the following accounts:

  • Consignment Account
  • Consignee’s Account
  • Goods sent on consignment Account.

The following entries are made in the books of the consignor for goods sent at proforma invoice price or cost price:

(1) For the goods sent on consignment

  • Consignment to ………A/C………………….Dr.
  • To Goods sent on consignment A/c

(2) For the expenses incurred by the consignor

  • Consignment to………A/C…………..Dr.
  • To Bank A/C

(3) For the advance received from consignee

  • Bank/Cash/Bills receivable A/C…………Dr.
  • To Consignee’s A/C

(4) For the bills discounted

  • Bank A/C……………….Dr.
  • To Bills receivable

(5) For a discount on bills transferred to profit and loss account

  • Profit and loss A/C……………….Dr.
  • To Discount A/c

(6) For expenses paid by the consignee

  • Consignment to…………..A/c……………..Dr.
  • To Consignee’s A/c

(7) For the goods sold by the consignee

  • Consignee’s A/c……………..Dr.
  • To consignment to……………..A/c

(8.) For the commission due to the consignee

  • Consignment to ……………..A/C
  • To consignee’s A/C

(9) For a closing stock with the consignee

  • Consignment stock A/C………..Dr.
  • To consignment to…….A/c

(10) For-profit or loss on consignment

For-profit earned on consignment

  • Consignment to……..A/C………………Dr.
  • To Profit and loss A/C

For loss on consignment

  • Profit and loss A/C…………………Dr.
  • To consignment to………….A/C

(11) For the final settlement of account with the consignee

  • Bank A/c……………Dr.
  • To Consignee’s A/c

(12) For goods sent on consignment transferred to a trading account(by a manufacturing company) or purchase account(by a trader)

  • Goods sent to consignment A/C…………..Dr.
  • To trading/ purchase A/C.