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NATIONAL UNIVERSITY - MANILA Advanced Financial Accounting & Reporting Review

College of Business and Accountancy 6. Consignment & Sales Agency


Consignment – selling goods through an agent
1. Consignor – manufacturer/owner of the merchandise (principal)
2. Consignee – dealer (agent)

Consignment transactions may be separately recorded or not. If not recorded separately, consignment
transactions are accounted as regular sales. If accounted separately, notable entriess will be:

Transactions Consignor Consignee

Goods shipped to consignee Dr. Consignment Inventory No entry
Cr. Merchandise Inventory
Payment of freight Dr. Consignment Inventory No entry
Cr. Cash
Notification of sale Dr. Accounts Dr. Cash
Receivables/Receivable from Cr. Payable to Consignor
Dr. Relevant Expenses
Cr. Consignment Sales

Dr. Cost of Consignment Sales

Cr. Consignment Inventory
Remittance from consignee Dr. Cash Dr. Payable to Consignor
Cr. Accounts Cr. Cash
Receivable/Receivable from

Important Reminders:
1. Goods sent to an agent on consignment continue to belong to the consignor until they are sold.
2. The consignee or agent sells the goods and collects the money due from customers.
3. The money collected is passed to the consignor after deduction of expenses and commission.
4. Del Credere Commission – extra commission payable to an agent who will promise to pay for any


Fleet is a Filipino merchant. During 2018 he sent merchandise on consignment to Sige, his agent in
Davao. The details of the transactions were as follows:
a. On January 1, 2018, 1,000 boxes were sent to Sige. The boxes had originally cost Fleet P200 each.
Selling price is P300 each.
b. Fleet’s carriage, freight and insurance costs paid amounted to P10,000.
c. During the voyage 10 boxes were lost. Fleet received a check of P2,200 as a compensation from his
insurance company for the loss of the boxes.
NATIONAL UNIVERSITY - MANILA Advanced Financial Accounting & Reporting Review
College of Business and Accountancy 6. Consignment & Sales Agency

d. Sige sold half of the total shipment and charged Fleet 5% commission. In addition, Sige paid
selling expenses of P5,000 on behalf of Fleet.
e. Sige remitted the cash due to Fleet.

1. Prepare journal entries on the books of Fleet and Sige.
2. Compute the net income of Fleet.

MC Problems
1. On August 1, 2018, JBD Inc. Consigned to Mags Store 10 ladies’ handbags costing P3,000 each,
paying freight charge of P3,000. At the end of the month, Mags Store reported sales of 6 handbags at
P6,000 each and incurred expenses of P2,500 and remitted the net proceeds due after deducting a 20%
commission. How much net income did JBD realize on the consignment sales?
a. P7,500 net income c. P6,700 net loss
b. P6,500 net income d. P6,500 net loss

2. Using the same information in number 1, what is the total cost of unsold handbags?
a. P12,000 b. P13,200 c. P14,200 d. P15,000

3. On November 1, 2018, the Western Appliance ships five of its appliances to the ABC Store on
consignment. Each unit is to be sold at P25,000 payable P5,000 in the month of purchase and P1,000
per month thereafter. The consignee is to be entitled to 20% of all amounts collected on consignment
sales. ABC store sold three appliances in November and one in December. Regular monthly
collections are made by the consignee and appropriate cash remittances are made to the consignor at
the end of each month. The cost of the appliances shipped by the consignor is was P15,500 each. The
consignor paid shipping costs to the consignee totalling P5,000. The cost of the inventory on
consignment on December 31, 2018 is:
a. P15,500 b. P16,500 c. P19,600. d. P24,500
4. Using the same information, the profit on consignment is:
a. P29,400 b. P15,500 c. P15,000 d. P14,000
5. Using the same information, the total amount remitted to the consignor for 2018 is:
a. P23,000 b. P18,400 c. P12,000 d. P6,400

Sales agencies are established to display merchandise and to take customer’s orders, but they do not
stock merchandise to fill customers’ orders or pass on customer credit. The sale agency is not a
separate business or accounting entiry. Ordinarily, the only accounting records required for sales
agencies are for cash receipts and disbursements, which are handled in essentially the same manner as
petty cash systems. The central accounting system of the business maintains records of sales made
through agency operations and related costs of sales and other expenses.

Transactions Home Office Books

1. To establish working fund Dr. Working Fund – Agency
Cr. Cash
2. Shipment of merchandise to sales agency Dr. Samples Inventory – Sales Agency
Cr. Shipments to Agency
NATIONAL UNIVERSITY - MANILA Advanced Financial Accounting & Reporting Review
College of Business and Accountancy 6. Consignment & Sales Agency

3. Fill sales order Dr. Accounts Receivable

Cr. Sales - Agency
4. Cost of goods sold identified with the agency Dr. Cost of Sales – Agency
sales Cr. Shipments to Agency
5. Replenishment of working fund Dr. Expenses – Agency
Cr. Cash
6. To close revenue and expense accounts of the Dr. Sales – Agency
agency Cr. Cost of Sales – Agency
Cr. Expenses - Agency
Cr. Agency Income
7. To close agency income to income summary Dr. Agency Income
Cr. Income Summary


1. Purchased land of P200,000 and building of P180,000 for the sales agency.
2. Home office sent cash of P40,000 to the sales agency.
3. Shipped merchandise foe display amounting to P8,000.
4. Paid salaries to employees of the agency at P10,000.
5. Sales orders from customers are billed for customers at P120,000. Cost is P60,000.
6. The agency reported the following expenses: Advertising, P18,000; Utilities P4,000; Miscellaneous
– P3,000.
7. Depereciation amounted to P9,000.
8. Remaining samples were P6,000.
9. Collected 60% of the amount billed to customers.

1. Prepare journal entries to record the agency tansactions.
2. Compute the net income of the sales agency.

MC Problems
1. Sad Company has a sales agency in Cebu. Agency revenues and expenses are recorded in separate
revenue accounts with the operating results of both the agency and the home office generated at each
month-end. For the month of October 2018, the home office paid P10,000 for the advertising costs on
behalf of the agency and recorded this as follows:
a. Cebu agency 10,000
Cash 10,000
b. Advertising expense 10,000
Cash 10,000
c. Accounts receivable – Cebu Agency 10,000
Cash 10,000
d. Advertising expense – Cebu Agency 10,000
Cash 10,000

2. Lipton Company had an agency in Antipolo. For the period just ended, the agency transactions
showed the following:
NATIONAL UNIVERSITY - MANILA Advanced Financial Accounting & Reporting Review
College of Business and Accountancy 6. Consignment & Sales Agency

Receipts from sales 350,000

Purchases 400,000
Salaries and commissions 70,000
Rent 20,000
Advertising supplies 10,000
Other expenses 5,000

The agency had P100,000 receivables and P50,000 payables as of the end of the period. Also, they
were inventories on hand of P90,000 and unused advertising supplies of P6,000. The agency was set
up as an experiment for one period and would be closed if losses were incurred. The agency should:
a. Review again because it was a break even operation.
b. Close with the period’s operational loss of P155,000.
c. Close with the period’s operational loss of P9,000
d. Continue with the period’s profit of P25,000.