Mudunuri Satyanarayana Raju

Consignment
What is consignment?
Consignment is an agreement between an owner and a third-party consignee whereby
the consignee agrees to sell the owners goods in exchange for a commission. The word
"consign" means "to send" and "consignment" means "sending goods to another
person “In the case of "retail consignment" or "sales consignment", goods are sent to
the agent for the purpose of sale. The ownership of these goods remains with the
sender. The agent sells the goods on behalf of the sender according to instructions. The
sender of goods is known as the "consignor" and the agent entrusted with the custody
and care of the goods is known as the "consignee". Consignment is a trust-based
commercial arrangement from which both the consignor and the consignee can
benefit. Consignment shops are the most common example of this type of exchange.
With the advent of the internet and e-commerce sites such as eBay.com, consignment
has become much more common.
How it works?
Consignment is an arrangement in which an item is placed in the care of another until
purchased by a buyer. Until the item is sold, the consignor still claims ownership and is
still responsible for anything that may happen to the item while it is in the care of the
consignee.
What is 'Consignment'
Consignment is an arrangement in which goods are left in the possession of another
party to sell. Typically, the consignor receives a percentage of the revenue from the
sale .Consignment deals are made on a variety of products, such as agriculture produce
like Cotton, chillies, artwork, clothing and accessories, and books. Consignment
arrangements typically are in effect for a set period of time. After this time, if a sale is
not made, the goods are returned to their owner. Alternatively, the consignment
period may be extended upon mutual agreement.

What is a consignment sale?

Consignment sale is an arrangement in trade in which a seller or the consignor sends
goods to a buyer or consignee without getting payment for the goods then itself. The
consignee or the buyer pays the amount only when the goods are sold.
Who is the consignor?
Person or firm who delivers a consignment to a carrier for transporting it to a consignee
named in the transportation documents. Ownership of the goods remains with the
consignor until the consignee pays for them in full.
What is a consignment agreement?
A consignment agreement is an agreement between a consignee and consignor for the
storage, transfer, sale or resale and use of the commodity. The consignee may take
goods from the consignment stock for use or resale subject to payment to the
consignor agreeably to the terms bargained in the consignment agreement.
What is the meaning of a consignee?
The person or company to whom goods or documents are officially sent or delivered: A
freight forwarder is an intermediate consignee - that is, they take possession of the
goods before delivering them to the ultimate consignee.
What is a consignment invoice?
Invoice for goods that is sent to a person or company that is not the owner but that is
responsible for selling the goods or returning them to the owner if they are not sold: In
your calculations, you should use the value of the stock as it is detailed in the
consignment invoice.
What is the meaning of consignment stock?
Consignment stock is stock legally owned by one party, but held by another, meaning
that the risk and rewards regarding to the said stock remains with the first party while
the second party is responsible for distribution or retail operations.

Commission or Consignee's Remuneration

When the goods are sold by the consignee, he is paid a commission for his services at a
fixed rate on the proceeds of the goods sold by him. In addition to this commission, he
is to be reimbursed for all expenses incurred by him in connection with the
consignment sales. Usually these expenses are in the nature of dock charges, custom
duties, carriage, go down rent, advertisement, insurance of the goods while in his
possession etc.
Del Credere Commission.
Usually the consignor advises the consignee to sell the goods consigned to him for cash
only, because if such goods are sold on credit by the consignee and if any amount
becomes irrecoverable from the debtors the loss will fall upon the consignor. As the
consignee acted as an agent only in effecting the sales, he does not become
responsible for any debts. But sometimes an arrangement is made between the
consignor and the consignee whereby the later guarantees payment and undertakes
responsibility for bad debts. For this the consignee receives an additional commission
known as ``Del Credere Commission'' on the total sales. When del-credere commission
is given to the consignee, the consignee will make payment to the consignor, whether
he himself receives the payment or not from the purchaser(s).
Over-riding Commission : This type of commission is allowed to the consignee in
addition to the normal commission (as distinct from Del credere commission). The idea
seems to be to provide addition incentive to the consignee for the purpose of creating
market for new products.

Proforma Invoice :

When goods are despatched, the consignor makes out a `Pro-Forma Invoice' giving
indication of the price of the goods at which the consignee ought to sell the goods. Pro-
Forma Invoice is a statement which is similar to that of an invoice, but it is called
proforma because it does not make the consignee responsible to pay the amount
named therein.

The consignor generally mentions a higher price than his cost so that consignee does
not know the profit of the consignor.

Advance against Consignment :

Until the goods are sold by the consignee, he is not indebted to the consignor and is
not expected to pay for them. This results in a part of the consignor's Capital being
locked up for a period. To overcome his difficulty, the consignee often remits a sum of
money in advance to the consignor. This may be done in the form of an acceptance of a
Bill of Exchange drawn by the consignor on the Consignee or a simple bank draft. An
advance is readily sent against consignment by the consignee to the consignor when
the consignment goods have become popular in the consignee's place.

Account Sales :

Periodically, the consignee will send statements of sales and expenses incurred,
commission earned and the consequent amount due to the consignor. Such a
statement is made in a form known as ``Account Sales''. An Account Sales may be
defined as a ``statement prepared and sent by the consignee to the consignor at
periodical travels, say three months or six moths detailing therein the goods payable
and the net amount due from the consignee after deducting the advances, if any, paid
already.

Multiple question and Answers on Consignments

1. In accounting consignment means.
a) Goods forwarded from one place to another.
b) Goods forwarded by a person to another.
 c) Goods sent by its owner to his agent.
d) Goods sent by its owner to his agent for the purpose by sale
2. Goods sent on consignment should be debited by consignor to
a) Consignment A/c
b) Goods sent on consignment A/c
c) Consignees A/c
d) Consignors A/c
3. In the books of consignor the balance of the consignment stock account would be
shown
a) As an asset in the balance sheet.
b) As liability in the balance sheet.
c) On the credit side of trading account.
d) On the debit side of consignment account.
4. On the dispatch of goods, the entry in the books of consignee would be
a) Consignment A/c will be debited and goods sent on consignment A/c will be credited.
b) Consignment A/c debit and consignee A/c credit
c) No entry
d) None of above
5. The consignor is
a) Principal
b) Agent
c) Debtor
d) None of them
6. The consignee is
a) Principal
b) Agent
c) Buyer
d) Seller
7. Account sales is submitted by:
a) Consignor
b) Consignee
c) Principal to his agent
d) Debtor to creditor
8. In the books of consignor, the expenses incurred by consignor should be debited to:
a) Consignees A/c
b) Consignment A/c
c) Expenses A/c
d) Consignor’s A/c
9. In the books of consignor, the expenses incurred by consignee should be debited
to:
a) Consignee A/c
b) Consignment A/c
c) Expenses A/c
d) Consignor’s A/c
10. In the books of consignor the acceptance of bills of exchange by the consignee will
be credited to:
a) Consignment A/c
b) Consignee’s A/c
c) Bill receivable A/c
d) Bills payable A/c
11. In the books of consignor the abnormal loss should be credited to:
a) Profit & loss A/c
b) Consignment A/c
c) Trading A/c
d) Consignees A/c
12. In case of delcredere commission, the liability for bad debts is on:
a) Consignor
b) Consignee
c) Customer
d) None of the above
13. In the books of consignor, the balance in the goods sent on consignment account is
shown:
a) On the asset side to balance sheet.
b) On the liability side of balance sheet.
c) On the credit side of trading A/c
d) On the credit side of consignment A/c
14. In the books of consignee the expenses incurred by him on consignment are
debited to:
a) Consignment A/c
b) Cash A/c
c) Consignor’s A/c
d) Expense A/c

15. In the books of consignee, the sale of goods is credited to:

a) Consignor’s A/c
b) Sales A/c
 c) Consignee’s A/c
d) Cash A/c
16. The consignment inward book or journal is maintained by ________.
a) Customer
b) Consignee
c) Debtor
d) Customer
17. (19)The consignee acts entirely on behalf of the:
a) Customer
b) Debtor
c) Consignor
d) Creditor
18. Del – credere commission is calculated on:
a) Credit sales
b) Cash sales
c) Total sale
d) Both (a) and (b)
19. Consignee A/c is the nature of:
a) Nominal A/c
b) Personal A/c
c) Real A/c
d) None
20. In consignee book, the acceptance of bill of exchange by consignee will be debited
to:
a) Trading A/c
b) Consignor A/c
c) Balance payable A/c
d) Consignee A/c

Single Line Answers

1. When goods are sent on Consignment, the property in the goods remains with
the consignor. Only the possession is transferred to the consignee.
2. When goods are consigned by one to another, it becomes a relationship of a
Principal and an Agent between the Consignor and the Consignee.
3. When goods are sent on Consignment the goods are returnable, if they remain
unsold.
 4. The risk in the goods is not transferred to the consignee despite the transfer of
possession of goods. Any damage or loss to the goods is therefore borne by
consignor
5. The expenses, in respect of freight, cartage, insurance, etc. are met by the
consignor in a consignment transaction
6. The consignee will be treated as a debtor only when goods or part of them have
been sold by him
7. If goods remain unsold, the consignee will send them back to the Consignor and
the Consignor will pay the Consignee all the expenses he has incurred in keeping
the goods in safety and in attempting to push the goods in the market.

Journal Entries in the Books of Consignor

1. When goods are sent to consignee:
Consignment A/C
Goods sent on consignment A/C
(Being goods sent to agent for sale)
2. For adjustment of the difference between invoice price and cost price:
Goods sent on consignment A/C .
Consignment A/C
(Being excess of invoice price over cost price of goods sent adjusted)
3. For expenses paid by consignor: .
Consignment A/C
Cash/Bank A/C
(Being expenses paid)
4. On receiving advance from consignee:
Cash/Bank
Consignee A/C
(Being advance received from agent)
5. If consignee has accepted a bill of exchange as an advance:
Bills receivable A/C
Consignee A/C
(Being acceptance received from agent)
6. When goods are sold by consignee:
Consignee A/C
Consignment A/C
(Being goods sold by agent)
7. For goods taken over by consignee for his personal use:
 Consignee A/C
Consignment A/C
(Being goods taken over by agent)
8. For expenses paid by Consignee :
Consignment A/C
Consignee A/C
(Being expenses incurred by agent)

9. For unsold goods with the consignee:

Consignment stock A/C
Consignment A/C
(Being value of closing stock with agent)

Note: If invoice value of stock is more than cost, the excess of invoice price over cost
will be adjusted.

10. For adjustment of closing stock:

Consignment A/C
Consignment stock reserve A/C
(Being profit included in stock adjusted)

11. For abnormal loss of goods:

1st Method:
(i) Loss of stock A/C
Consignment A/C
(Being total value of loss of stock)

(ii) Bank/Insurance Co. A/C

Loss of stock A/C
(Being insurance claim for sale)

(iii) Consignee A/C

Loss of stock
(Being damaged goods sold by agent)

(iv) Profit and loss A/C

Loss of stock A/C
(Being net loss of stock transferred to profit and loss account)

b. 2nd Method:
(i) Bank/Insurance Co. A/C
Consignment A/C
 (Being amount of insurance claim)

(ii) Consignee A/C

Consignment A/C
(Being damaged goods sold by agent)

(iii) Profit and loss A/C

Consignment A/C

Following are the set of journal entries recorded in the books of the Consignee:
1. When the Goods Received:
No entry
The Consignee is not the owner of the goods. He does not purchase the goods.
Hence he does not include this in his book. The receipt of the goods is recorded in
a Memorandum Book – Consignment Inward Book.

2. When Expenses are incurred by the Consignee:

Consignor Account Dr.
To Bank Account
(Being expenses paid on consignment)

3. Advance Remitted to Consignor by Cash/Cheque/Bills Payable:

Consignor Account Dr.
To Cash/Bank/Bills Payable A/c
(Being advance paid to Consignor)

4. When Consignee Sold the Goods:

(a) For cash sales:
Bank Account Dr.
To Consignor Account
(Being the cash sales of consignment)
(b) For credit sale:
Consignment Debtors Account Dr.
To Consignor Account
(Being the credit sales of consignment)

5. When the Commission is due:

Consignor Accounts Dr.
To Commission Account
(Being commission earned on sale of consignment)
 6. When the Consignee Collected the Debt from Consignment Debtors:
Bank Account Dr.
To Consignment Debtors A/c
(Being the Collection of consignment debts)

7. For Bad Debts if Any:

(a) If Del Credere Commission is not paid:
Consignor Account Dr.
To Consignment Debtors A/c
(Being bad debt incurred on sales)
(b) If Del Credere Commission is paid:
Bad Debts Account Dr.
To Consignment Debtors A/c
(Being bad debts incurred on consignment sales)
Note: Bad debts from Consignment debtors are transferred to Del Credere Commission
Account and the balance of Del Credere Commission Account along with Commission
account is transferred to his Profit and Loss Account.
(c) Bad debts is transferred to his Profit & Loss Account:
Del Credere Commission Account Dr.
To Bad Debts Account
(Being bad debts transferred to Del Credere Commission Account)

8. Closing of Del Credere Commission and Commission Account:

Commission Account Dr.
Del Credere Commission Account Dr.
To Profit and Loss Account
(Being Commission account and balance of Del Credere account is closed by
transferring to Profit and Loss Account)

9. Settlement of Account with Consignor:

Consignor Account Dr.
To Cash/Bank/Bill Payable A/c
(Being the amount due to Consignor is settled)