Consignment Account

CONSIGNMENT ACCOUNT

Nature of Consignment

A trader sends goods to an agent to sell for him. These goods are sent on consignment.  The ownership of goods still belongs to the trader, therefore all profits on consignment belongs to the trader.  The agent earns commissions, he is NOT the owner, he is only the employee.

Consignment Terms

Consignor:        The trader who sends goods to the agent to sell for him.

Consignee:       The agent who receives the goods.

Account Sales: The statement prepared by the agent (consignee) to tell the trader

 (consignor), how much goods he sold.  (source document to trader)

Commissions:  Salary earned by the agent (consignee) if he can sell goods.

                         Commissions are calculated on gross proceeds of sales.

Del Credere

Commission:   Additional commissions earned by the agent (consignee) if the agent if

 the bears the responsibility of bad debts occurred. (Note:  If there is bad

debt, a del credere commission cannot be received by the consignee).

Proforma

Invoice            :           A detailed invoice that informs the consignee on the description of the

 goods and the minimum selling price for the goods.  This invoice does

 not charge the consignee.

CONSIGNOR’S RECORDS

The primary object for preparing the consignment account is to find the profit/loss on each consignment separately.  For that the consignor prepares four (4) basic records:

1. Goods Sent On Consignment Account
2. Individual Consignment Outwards Account
3. Individual Consignee Personal Accounts
4. Profit & Loss on Consignment Account

1: Personal consignment accounts for each consignee/Goods sent on Consignment to distinguish one consignment from another. This account is credited with the original cost of the goods.

2: Consignment outwards is a combined trading and profit and loss account relating solely to consignment.

2a) Stock on hand –  It is not necessary that all consignment should be completed during the current year.  If all consignment is not sold a value should assigned to it. This calculation does NOT include selling expenses or commissions.

Original cost + consignors expenses + consignees expenses (except selling exp. & commissions) = Total value/Total cost.

Value of unsold stock =  unsold quantity  x total value

                                         total quantity

2b) Calculation of expenses – If all of the stock is not sold it is also necessary to allocate/spread out the cost of expense for the goods sold.

Expense for profit & loss = consignors expenses + consignees expenses (except selling exp. & commissions) = Total expense

Expense for profit & loss = amount sold x total expense

                                             amount consigned

3) Individual account of Consignees – These are opened for each agent and are debited with sales made, and credited with the consignee’s expenses and commissions.

4) Profit and Loss on Consignment – This account is also a comprehensive account and contains profits made on all consignments carried out during the trading period.  The total of this is transferred to the profit and loss account at the end of the year.

CONSIGNEE’S RECORDS

The consignee’s records are less involved and because he does not have to keep record of stock except by way of memorandum.  The consignee records include:

1. Account Sales (source document for consignor)
2. Consignment Inwards Account
3. Debtors Account
4. Bad Debts Account
5. Commissions Received Account

1. Account Sales – to show the consignor amount of sales, all expenses paid for on consignment, and commission deducted.  This will show how much money the consignee is remitting/sending to the consignor.

2. Consignment Inwards Account – to record the amount of consignment received.

3. Debtors Account ­ – to record the consigned goods that was sold on credit.

4. Bad Debts Account – to record the amount of consigned good that is uncollectable.

5. Commissioned Received Account – to record all commissions received from consignment.