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Consignment Accounts
Need and Meaning of Consignment:
In an ever growing market for almost every product, it is becoming very difficult for the manufacturer or the wholeseller toestablish a direct link with the ultimate consumers of his products because of largedistance, high cost of marketing through own selling outlets (e.g., branches) andignorance of local conditions. Under these circumstances consignment is a popular way of creating new markets for a product and distributing goods in national andinternational markets. This type of dispatch of goods by one person from one place toanother person at another place is known as the consignment. The word consignmentcan be generally defined as the act of sending of goods by one merchant to another merchant at a different place for the purpose of warehousing and ultimate sale oncommission basis at the sole risk of the sender himself. Goods sent are known asConsignment. The sender of the goods is called the Consignor. Generally forwardedfor the purpose of sale is known as the Consignee. The consignment can be classifiedas:
(1)
Outward Consignment
: It is called outward when the dispatch of quantity of goodsfrom one country to another is made for the purpose of sale.
(2)
Inward Consignment
: It is called inward when the receipt of the quantity of goodsis made for the purpose of sale.Goods sent on consignment do not become the property of the consignee. He has not bought them. The ownership remains with the sender o the consignor. If the goods aredestroyed, the receiver (consignee) is nor at all responsible. The loss will fall on theconsignor. The consignee tries to sell the goods according to the instructions of theconsignor. When the goods have been sold, he will deduct his expenses, commissionetc., from the sale proceeds and the balance is remitted to the consignor. Therelationship between the consignor and the consignee is that of principal and agent.The consignee is the agent. The consignee acts entirely on behalf of the consignor.The consignee is entitled to his remuneration which is generally fixed on the basis of acommission on sales. The expenses incurred by the consignee must also bereimbursed by the principal. The student must remember that the consignee does not buy the goods; he merely receives the possession of goods. Therefore, such goodsrequire special treatment in accounts.The main features of consignment transaction can now, therefore, be put as under:
(1)
Consignment of goods is not sale. It is mere transfer of possession of goods.
(2)
The consignee sells goods at the risk of consignor. He is nor responsible for anyloss.
(3)
The sale proceeds belong to the consignor and the consignee merely getscommission and expenses the he might have incurred.
 
(4)
The relationship between consignor and consignee is that of a principal and anagent.
Distinction between a Consignment and a Sale.
The following are the main pointsof difference between a consignment and a sale:
(1)
In case of a sale, the legal relationship of the goods sold is transferred to the purchaser of goods; whereas in case of a consignment of goods, the legal ownershipof the goods is not transferred to the consignee but the ownership of the goodsremains vested in the consignor till the goods consigned are sold by the consignee.
(2)
In case of a sale of goods, the relationship between the seller and the purchaser of the goods is that of a creditor and a debtor whereas in case of a consignment therelationship between the consignor and the consignee is that of a principal and anagent because the consignee is to sell goods on behalf of the consignor.
(3)
In consignment, expenses incurred by the consignee in connection with the goodsconsigned to him are usually borne by the consignor whereas in case of sale,expenses incurred after sale of goods are borne by the purchaser.
(4)
In case of consignment, risk attached to the goods sold lies with the consignor tillthe goods consigned are sold by the consignee. But in case of a sale. Risk attachedto the goods sold is transferred to the purchases of goods.
(5)
In case of consignment, return of goods is possible, it the goods are not sold by theconsignee. But in case of sale return of goods is not possible as goods once sold arenot returnable.
(6)
In case of consignment, account sales are required to be submitted periodically bythe consignee to the cosigner. But in case of sale no account sale is required to besubmitted by the purchaser to the seller.
Important Terms:Commission:
The term commission as used in connection with consignment denotesthe remuneration of the consignee for selling the goods of the consignor. This can besimple del-credere and over-riding.
(1)
 
Simple commission
is calculated as per terms laid down by the consignor usuallythis is a fixed percentage on total sales.
(2)
 
Del-Credere Commission
is an extra commission allowed to the consignee of hisguaranteeing the realization of the debts in full, in connection with the credit sale of goods on consignment. Goods may be sold by the consignee either for cash or oncredit. When they are sold on credit the consignee may guarantee that they will beduly paid for and that he will be liable to indemnify the consignor for all bad debts insuch cases the consign or pays the consignee an extra commission for the guarantee.This extra commission is called Del-Credere Commission.
(3)
 
Over-riding Commission
in order to give further incentive sometimes an extracommission termed as over-riding commission is allowed to consignee, in case thesales exceed a specified amount it is also calculated on total sales.
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Adnan Zulifqar

best study sport to accounting students thanks a lot............................

reply05 / 26 / 2011
dushyant1605

i think it is incomplete

reply12 / 03 / 2009
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