Professional Documents
Culture Documents
Consignment
Goods Net proceeds + Account sales
Consignee (Agent)
Consignor account
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.
1. Consignor The owner of the goods who sends the goods to an agent for sale. 2. 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.
4
3. 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.
1.
Consignment account
Consignors Books
Consignment Account
Expenses
Income
2. Consignee account
Consignee Account
4. Summary of procedures
Transactions Double entries
2. Expenses incurred by the consignor. 3. Expenses incurred by the consignee and the commission payable to the consignee. 4. Sales recorded on the account sales
5. Normal loss
Normal loss of stock of the consignment which was not insured. (Normal loss: damaged stock, obsolete stock)
No entry
Dr Bank Cr Consignment Dr Bank/Insurance company Dr Profit and Loss Cr Consignment(Total loss) Dr Bank/Bills receivable Cr Consignee
Abnormal loss
Abnormal stock loss credited to consignment account. (Abnormal loss: fire loss, burglary loss, stolen in transit)
10. Profit on the consignment is Dr Consignment transferred to the profit and loss account. Cr Profit and loss (Reverse the entries if it is a loss.)
10
9.
Trading
1.
Consignment
11
Consignment
$ $
1. 2. 3.
Goods sent on consignment Banks-consignors expenses Consignee- consignees expenses consignees commission 10. P & L-profit on consignment
x x
x x x x
4. 6. 6. 7.
Consignee-sales Bank/Insurance Co.-claim Bank/Insurance Co.-claim Profit and Loss-net stock loss
x x x x
_ x
12
Consignee
$ $
4.
Consignment-sales
_ x
x x x x
13
Consignee
$ $
Consignment-sales
18,000
______ 18,000
14
Dr Consignment Cr Consignee
15
Consignment
$
Consignee-bad debts
Consignee
$
Consignment-bad debts
16
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.
17
Accounting entries in the books of the consignee Dr Bad debts Cr Debtors (with the bad debts borne by the consignee personally)
18
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.
19
Consignment
$ $
Year 1
x x
x x
20
21
Consignors cost = Total consignors cost * Units of closing stock / Total units of goods SENT on consignment = [Cost of goods on consignment + Consignors expenses] * Units of closing stock / Total units of goods SENT on consignment
22
Consignees 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, salesmens salaries, bad debts, discounts allowed, delivery charges(to customers), selling expenses, distribution expenses.
23
Example
24
Consignment
$
60,000 500 200 700 - delivery charges to warehouse 1,280 - advertising 1,000 - delivery charges to customer 900 - dis. allowed 320 - ordinary com. 4,700 ($94000*5%) - del credere com. 500 (50000*1%)
94,000
25
Workings
Value of the stock loss (10 boxes) Stock loss = (1,000 * $60 + $500 +$200) * 10/1,000 = $607
26
Consignment
$
60,000 500 200 700 - delivery charges to warehouse 1,280 - advertising 1,000 - delivery charges to customer 900 - dis. allowed 320 - ordinary com. 4,700 ($94000*5%) - del credere com. 500 (50000*1%)
Chan sales (500+440)*$100 Bank claim Profit and Loss stock loss (607-300)
94,000
300 307
27
Workings
Value of the Closing Stock Consignors Cost: ($1,000 * $60 + $500 + $200) * 50/1,000 Consignees Expenses: ($700 + $1,280) * 50/990
3,035
100
3,135
28
Consignment
$ $
60,000 Chan sales 500 (500+440)*$100 200 Bank claim 700 Profit and Loss stock loss - delivery charges to warehouse 1,280 (607-300) - advertising 1,000 Balance c/d - delivery charges to customer 900 - dis. allowed 320 - ordinary com. 4,700 ($94000*5%) - del credere com. 500 (50000*1%) Profit and Loss Profit on consignment 27,642
97,742
97,742
29
Chan
Consignment - sales $ 94,000 Consignment -port charges -delivery changes to warehouse -advertising -delivery charges to customers -dis. allowed -ordinary com. -del credere com. Bank
$
700
1,280 1,000
900 320 4,700 500 84,600 94,000
94,000
30
Consignees 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.
31
Summary of procedures
Transactions Double entries
1. Goods received form consignor. 2. Expenses paid by the consignor. 3. Commission received (ordinary and del credere commission). 4. Expenses paid on behalf of the consignor.
5. Discounts allowed to customers/
No entry
No entry Dr Consignor Cr Commission Received
consignee personally. (When the consignee receives a del credere commission, he should bear all losses from bad debts) 8. Cash sales
9. Credit sales 10. Payment to the consignor by cheque or bill
Dr Consignor Cr Debtors Dr Profit and Loss/Bad Debt Cr Debtors Dr Bank/Cash Cr Consignor Dr Debtors Cr Consignor Dr Consignor Cr Bank/Bill payable
33
Consignor Account
$ $
Bank consignees expenses Commission Received - ordinary - del credere Debtors dis. allowed Debtors bad debts Bank / Bill payable to consignor
x x x x x x x x
x x
_ x
34
Example The facts are the same as in the pervious example, but the transaction would be shown in the books of consignee. In Chans Books Tang Consignor Account
Bank -port charges -delivery changes to warehouse -advertising -delivery charges to customers Commission Received -ordinary -Del credere Bank to consignor 4,700 500 84,600 94,000 94,000
35
$ 700
1,280 1,000 900
$ 50,000 44,000
Further Considerations
36
37
In Consignors Book
N N C
39
In Consignees Book
The only entries needed is for the commission received.
Expenses Bad Debts Bad Debts (If he has received a del credere commission, he will bear the Consignments bad debts) C Net Profit T
N N
C
T
40
41
42
Bank joint venture sales Consignee consignment sales Stock c/d unsold stock of joint venture and consignment
X X
X
X
X
43
X
X X
44
Bank joint venture sales Goods Sent on Consignment Consignment profit Stock c/d unsold stock of joint venture only
X X X
X X
45
Consignment Account
$ Goods Sent on Consignment Bank expenses Consignee expenses Joint Venture consignment profit X X X X $
Sales joint venture only Goods Sent on Consignment Consignment profit Stock c/d joint venture only
X X X X
46
47