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    CONSIGNMENT - Focus Notes

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    brunx
    - Consignment sales involve an arrangement where the owner (consignor) transfers goods to another party (consignee) who acts as the seller. The consignee is entitled to reimbursement for expenses and a commission on sales. - Ownership of the goods remains with the consignor. Expenses of both parties are tracked separately in their accounting records. - Upon sale of goods, the consignee pays expenses to the consignor and keeps a commission, remitting the remaining funds to the consignor. Both parties record the transactions differently depending on if they are consignor or consignee.

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    CONSIGNMENT - Focus Notes

    Uploaded by

    brunx
    832 views5 pages
    - Consignment sales involve an arrangement where the owner (consignor) transfers goods to another party (consignee) who acts as the seller. The consignee is entitled to reimbursement for expenses and a commission on sales. - Ownership of the goods remains with the consignor. Expenses of both parties are tracked separately in their accounting records. - Upon sale of goods, the consignee pays expenses to the consignor and keeps a commission, remitting the remaining funds to the consignor. Both parties record the transactions differently depending on if they are consignor or consignee.

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    CONSIGNMENT - focus notes

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    - Consignment sales involve an arrangement where the owner (consignor) transfers goods to another party (consignee) who acts as the seller. The consignee is entitled to reimbursement for expenses and a commission on sales. - Ownership of the goods remains with the consignor. Expenses of both parties are tracked separately in their accounting records. - Upon sale of goods, the consignee pays expenses to the consignor and keeps a commission, remitting the remaining funds to the consignor. Both parties record the transactions differently depending on if they are consignor or consignee.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    832 views5 pages

    CONSIGNMENT - Focus Notes

    Uploaded by

    brunx
    - Consignment sales involve an arrangement where the owner (consignor) transfers goods to another party (consignee) who acts as the seller. The consignee is entitled to reimbursement for expenses and a commission on sales. - Ownership of the goods remains with the consignor. Expenses of both parties are tracked separately in their accounting records. - Upon sale of goods, the consignee pays expenses to the consignor and keeps a commission, remitting the remaining funds to the consignor. Both parties record the transactions differently depending on if they are consignor or consignee.

    Copyright:

    Attribution Non-Commercial (BY-NC)
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    of 5

    CONSIGNMENT SALES

    - is an arrangement whereby the owner or seller (consignor) transfers


    merchandise to another party (consignee) who’ll act as seller of the goods
    and is entitled to reimbursement for expenses related to the consigned
    merchandise and is entitled to a commission when sold

    - merchandise is still owned by consignor

    - consignment expense by consignor are “added costs” to inventory


    balance

    - reimbursable expense by consignee is added to its “receivable account”


    and added to inventory by consignor

    Transactions Consignor’s books Consignee’s books


    Shipment of goods on Inventory on Consignment XX Memorandum records are kept
    consignment Merchandise Inventory XX
    Payment of expenses by Inventory on Consignment XX No entry
    consignor Cash XX
    Payment of expenses by Inventory on Consignment XX Consignor Receivable XX
    consignee Consignee Payable XX Cash XX
    Sale of merchandise No entry Cash XX
    Consignor Payable XX
    Notification Commission Expense XX Consignor Payable XX
    Consignee Payable XX Cash XX
    Cash XX Commission Revenue XX
    Consignment Sales Revenue XX Consignor Receivable XX

    COGS * XX
    Inventory on Consignment XX

    * COGS is proportion to the percentage of units sold to total units with the total
    “Inventory on consignment”

    Account Sales are submitted by the consignee to the consignor, together with the
    remittances.

    Account Sales
    Sales XX
    Charges:
    Advertising XX
    Commission XX ( XX )
    Remittance P XX

    Illustration
    (a) AAA Co. consigned 20 units of merchandise, worth 60,000 each with 100,000
    sales price, to BBB C. in a 10% commission.
    (b) AAA Co. expensed 10,000
    (c) BBB Co. expensed 16,000
    (d) BBB sold 15 merchandise and notifies the consignor
    Consignor Consignee
    (a) Inventory on Consignment 1,200,000 Memorandum record
    Merchandise Inventory 1,200,000
    (b) Inventory on Consignment 10,000 No entry
    Cash 10,000
    (c) Inventory on Consignment 16,000 Consignor Receivable 16,000
    Consignee Payable 16,000 Cash 16,000
    (d) Cash 1,500,000
    Consignor Payable 1,500,000
    (d) Consignee Payable 16,000 Consignor Payable 1,500,000
    Commission Expense 150,000 Consignor Receivable 16,000
    (1.5M x 10%) Commission Revenue 150,000
    Cash 1,334,000 Cash 1,334,000
    Consignment Sales Revenue 1,500,000

    COGS 919,500
    Inventory on Consignment 919,500

    1,200,000 or 15
    10,000 / 20
    16,000 .78
    1,226,000 x 1,226,000
    / 20 919,500
    61,300
    X 15
    919,500

    Alternative Accounting Treatment for Consignment Sales – Consignment Profit


    Calculated Separately
    Consignor
    1. Maintains a “Consignment Out” account.
    Consignment Out
    Shipment to consignee at cost Consignment sales *
    Consignor expenses Consignment loss
    Reimbursable consignee expenses
    Consignee commission
    Consignment Profit

    * When consignee expenses and commissions are not debited to CO, credit to
    this account represents consignee remittances instead of consignment sales.
    a.) For shipment
    Perpetual Periodic
    Consignment Out XX Consignment Put XX
    Merchandise Inventory Merchandise shipment on
    XX Consignment
    XX

    b.) At the end of the period, adjusting entry is made to take up consignment
    profit or loss with a corresponding credit (income) or debit (loss) to a
    temporary account “Consignment Income”
    c.) Determination of expenses to be allocated and not allocated to sold and
    unsold units is needed to determine profit or loss.
    Expenses to be allocated:
    1. shipping cost, freight and handling cost paid by the consignor upon shipment
    2. freight and cartages paid by the consignee upon receipt of the shipment
    3. packing expenses related to consigned goods
    4. insurance on consigned goods
    5. additional cost incurred by the consignor or consignee on the consigned
    goods like installation of safety devices, repairs, etc.

    Expenses that are directly charged to sold goods:

    1. delivery and installation


    2. commissions
    3. advertising
    4. reconditioning cost on delivered units
    5. expenses relating to returned units

    Consignee

    1. Maintains a “Consignment In” account.


    Consignment In
    Consignee expenses Consignee sales
    Commission of the consignee
    Remittance to the consignor

    a.) consignee prepares a memorandum entry upon receipt of shipment


    b.) commissions are recorded after recording sales by crediting the account
    “Commissions on Consignment”
    c.) entries in perpetual and periodic are the same

    Illustration

    Transactions Consignor Books


    Shipment of goods on Consignment Out 1,200,000
    consignment Merchandise shipment on
    Consignment
    1,200,000
    Payment of expenses by Consignment Out 10,000
    consignor Cash
    10,000
    Payment of expenses by No entry
    consignee
    Sale of merchandise No entry
    Commission charged by consignee No entry
    Remittance of consignee to Consignment Out 166,000
    consignor Cash 1,334,000
    Consignment Out
    1,500,000
    Consignment profit Consignment Out 426,500
    Consignment Income
    426,500
    Consignment Sales
    1,500,000
    Less: Cost of Goods Sold 900,000
    Shipment cost
    10,000 x 15/20 7,500
    Advertising 16,000
    Commission 150,000
    1,073,500
    Profit
    426,500

    Transactions Consignee Books


    Shipment of goods on Memo Entry
    consignment
    Payment of expenses by No entry
    consignor
    Payment of expenses by Consignment In 16,000
    consignee Cash
    16,000
    Sale of merchandise Cash 1,500,000
    Consignment In
    1,500,000
    Commission charged by consignee Consignment In 150,000
    Commission on Consignment
    150,000
    Remittance of consignee to Consignment In 1,334,000
    consignor Cash
    1,334,000
    Consignment profit No entry

    * consignee charges are recorded by consignor by debiting Consignment Out,


    depending whether expenses are to be allocated or be directly charged to sold units

    Alternative Accounting Treatment – Not calculated Separately


    Consignor
    1. Consignor uses sales and expenses in recording consignment.
    a.) Shipment
    Perpetual Periodic
    Merchandise on Consignment XX Memo entry
    Merchandise Inventory
    XX

    b.) After sales, consignor record Cost of Sales in perpetual. In periodic,


    there will be no entry but ending inventory is set up.
    c.) Expenses allocated to unsold are deferred and are recording by
    debiting the “Merchandise on Consignment”.
    d.) Merchandise on Consignment balance represents inventory of
    consigned goods which consists of cost and deferred expenses.

    Consignee
    1. Consignee uses Sales, Cost of Sales, and Purchases, However it uses the
    name of the consignor for the expenses and remittance.
    a.) In shipment, the consignee prepares a memorandum entry.
    b.) After recording Sales, Cost of Sales is recorded (Perpetual), or purchases
    (Periodic).
    Sales XX
    Less: Commission ( XX )
    Cost of Sales / Purchases P XX

    Illustration

    Transactions Consignor Books


    Shipment of goods on consignment Memo
    Payment of expenses by consignor Shipping Cost 10,000
    Cash 10,000
    Payment of expenses by consignee No entry
    Sale of merchandise No entry
    Commission charged by consignee No entry
    Remittance of consignee to consignor Cash 1,334,000
    Advertising Cost 16,000
    Commissions
    Sales 1,500,000

    Merchandise on Consignment 32,500


    Shipping cost 7,500
    Income Summary 295,000

    Transactions Consignee Books


    Shipment of goods on consignment Memo entry
    Payment of expenses by consignor No entry
    Payment of expenses by consignee AAA Co 16,000
    Cash 16,000
    Sale of merchandise Cash 1,500,000
    Sales 1,500,000
    Commission charged by consignee No entry
    Remittance of consignee to consignor AAA co. 1,334,000
    Cash 1,334,000

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