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