CONSIGNMENT SALES

DE LEON/ DE LEON/ DE LEON

CONSIGNMENT SALES
 an arrangement whereby the owner of the goods
transfers possession of the same to a third party,
the agent, so the latter may sell it to customers.

 the owner is called consignor, and the seller,

consignee

 There will be no transfer of title over the goods

upon the shipment from the consignor to the
consignee
TYPES OF COSTS
TYPES OF COSTS

Seller Buyer
Selling Expense

Outright Expense
TYPES OF COSTS

Consignor Consignee Buyer

Cost to Transfer Goods Selling Expense

Capitalized Outright Expense

COSTS INCURRED UPON THE TRANSFER OF GOODS
1. Deferred
and allocated to the cost of sales
and to the ending inventory of the
consigned goods

2. One
deferral method is to capitalize these
items as additional cost of the consigned
goods to achieve simultaneous allocation

3. Someexamples are: (a) shipping, freight,

and handling costs; (b) insurance
premium on consigned goods; and (c)
assembly or reconditioning costs on
consigned goods.
COSTS INCURRED BY THE CONSIGNEE IN
SELLING THE GOODS TO INDIVIDUAL CUSTOMERS
1. Some examples are (a) advertising, delivery, and
installation of sold units; (b) insurance premium
while in transit to the buyer; and (c)
reconditioning or repair of already delivered units
to customers.

2. These costs are expensed in full immediately by

the consignor
METHODS OF ACCOUNTING FOR
THE CONSIGNMENT PROFIT BY
THE CONSIGNOR
PROFITS MERGED TOGETHER FOR ALL
CONSIGNEES

1. From the standpoint of the consignor, its

consignment sales, cost of consignment sales,
advertising expenses, and commission expenses,
etc. are a combination of like items from all
consignees during the period and comprise the
total for each of these items in the income
statement.
2. The inventory of consigned merchandise still held
by all consignees at the end of the period,
combined together, will be the total inventory of
consigned merchandise to be shown on the balance
sheet of the consignor.
PROFITS DETERMINED FOR EACH CONSIGNEE

1. Consignment-Out account is set up in the books of the

consignor for every consignee and a Consignment-In
account is set up in the consignee’s records to account for
the consignment transactions in their respective records
2. The Consignment-Out account will be debited for the cost of
the goods consigned; costs and expenses paid by the
consignor; costs and expenses paid by the consignee, and
consignment profit. It will be credited for consignment sales
and for the cost of consigned goods returned to the
consignor.
3. The Consignment-In account will be debited for the costs
and expenses incurred by the consignee and for the
commissions it earns from the arrangement. It will be
credited for the amount of consignment sales. Receipts of
consigned goods from the consignor, as well as returns, if
any, to the consignor are by memo entries only
CASE 1
An account sales rendered by the consignee apprises the consignor
of the former’s sales activities for a given period and serves as a
basis for the consignor’s journal entries. The following is the account
sales for the above transactions.

1. ACCOUNT SALES
Sales ( 8 TV sets x P35,000) P 280,000
Less: Delivery expenses P 3,000
Commission expenses (P280,000 x 10%) 28,000 31,000
Check enclosed P 249,000
2. COGS and Inv, end
Original Cost of Inv P 25,000 * 10 P 250,000
Capitalized Costs 5,000
Total Cost of Inv. P 255,000

Cost of Sales Inv, end

8 / 10 2 / 10
255,000 * 8/10 255,000 * 2/10
P 204,000 P 51,000
2. NET PROFIT
Sales P 280,000
Less : Cost of sales (P250,000 + P5,000) x 8/10 204,000
Gross profit P 76,000
Operating expenses:
Delivery expenses P 3,000
Commissions expenses 28,000 31,000
Net profit P 45,000

3. INVENTORY OF UNSOLD TV SETS

(P250,000 + P5,000) x 2/10 P 51,000
4. JOURNAL ENTRIES (Profits not kept separate by consignee)
CONSIGNOR CONSIGNEE
Merch on consignment 250,000 Memo entry
Shipment on consignment 250,000
Merc on consignment 5,000 No entry
Cash 5,000
No entry Consignor receivable 3,000
Cash 3,000
No entry Cash 280,000
Consignor payable 280,000
Cash 249,000 Consignor payable 280,000
Delivery expenses 3,000 Consignor receivable 3,000
Commission expenses 28,000 Commissions revenue 28,000
Consignment sales 280,000 Cash 249,000
CASE 2
1. ACCOUNT SALES
Sales (12 oven units x P20,000) P 240,000
Less: Shipping costs (for consigned goods) P 4,500
Shipping costs (for units sold) 5,000
Commissions (P240,000 x 5%) 12,000 21,500
Remittance enclosed P 218,500
2. COGS and Inv, end
Original Cost of Inv P 12,000 * 20 P 240,000
Capitalized Costs 4,500
Total Cost of Inv. P 244,500

Cost of Sales Inv, end

12 / 20 8 / 10
244,500 * 12/20 244,500 * 8/20
P 146,700 P 97,800
CASE 2
1. ACCOUNT SALES
Sales (12 oven units x P20,000) P 240,000
Less: Shipping costs (for consigned goods) P 4,500
Shipping costs (for units sold) 5,000
Commissions (P240,000 x 5%) 12,000 21,500
Remittance enclosed P 218,500
2. NET PROFIT
Sales P 240,000
Less: Cost of sales (P240,000 + P4,500) x 12/20 P146,700
Shipping expenses 5,000
Commission expenses 12,000 163,700
Net income P 76,300
3. ADJUSTED BALANCE OF CONSIGNMENT-OUT ACCOUNT
(P240,000 + P4,500) x 8/20 P 97,800

4. As explained earlier, the shipping cost of the consigned

goods from the consignor to the consignee pertains to all
the consigned goods and therefore must be capitalized,
preferably to cost of the consigned goods, regardless of
which party paid for it. Obviously, the shipment cost on
the sold units should be expensed immediately.
5. JOURNAL ENTRIES (Profits kept separate for each consignee).
CONSIGNOR CONSIGNEE
Consignment-out 240,000 Memo entry
Inventory 240,000
No entry Consignment-in 9,500
Cash 9,500
No entry Cash 240,000
Consignment-in 240,000
Cash 218,500 Consgnmnt - in 240,000
Consignment- out 21,500 Consignment - in 9,500
Consignment-out 240,000 Commissions rev. 12,000
Cash 218,500
Consignment – out 76,300 No entry
Consignment profit 76,300
5. JOURNAL ENTRIES (Profits kept separate for each consignee).
CONSIGNOR
Consignment-out 240,000
Inventory 240,000
No entry Sales 240,000
Cost of Sales
Orig. Cost (240,000)
Cap. Cost ( 4,500)
No entry Inv, end 97,800
Selling Exp ( 17,000)

Cash 218,500 Net Profit 76,300

Consignment- out 21,500 Consignment Out

Consignment-out 240,000 240,000 240,000
21,500
76,300
Consignment – out 76,300
97,800
Consignment profit 76,300
RECLASSIFICATION ENTRIES FOR THE CONSIGNMENT-OUT
ACCOUNT AT YEAR-END
Cost of sales 146,700 No entry
Shipping expenses 5,000
Commissions expenses 12,000
Consignment profit 76,300
Consignment sales 240,000

Inv of consigned Merch 97,800 No entry

Consignment – out 97,800
REVERSING ENTRY AT THE BEGINNING OF NEXT PERIOD
TO RESTORE THE CONSIGNMENT-OUT ACCOUNT.

Consignment – out 97,800 No entry

Inv of consigned Merch 97,800
CASE 3
COGS and Inv, end
Original Cost of Inv P 11,520
Capitalized Costs P 936 + 360 1,296
Total Cost of Inv. P 12,816

Cost of Sales Inv, end

50 / 80 30 / 80
12,816 * 50/80 12,816 * 30/80
P 8,010 P 4,806
 CASE 3
1. Consignment-Out 2,490
Consignment profit 2,490

Sales P 13,125
Less: Cost of sales (P11,520 + P936 + P360) x 50/80 (8,010)
Commission expenses (2,625)
Net profit P 2,490

2. Balance of Consignment-Out after profit

adjustment (P2,316 + P2,490) P 4,806
Cost of inventory of unsold units P 4,806
[(P11,520 + P936 + P360) x 30/80]
3. Cost of consignment sales 8,010
Commission expense – Consignment sales 2,625
Consignment profit 2,490
Consignment sales 13,125

Inventory of consigned merchandise 4,806

Consignment – Out 4,806

The reclassification entry for the Inv,end has to be

reversed on August 1, 2019 in preparation for accounting
of next month’s consignment transactions.
 MULTIPLE CHOICE

1. A
Sales ( 215 dresses x P500) P107,500
Less Delivery expenses 2,100
Remittance by Anne P105,400

2. B
Anne’s entry for the remittance:
Consignment-in 107,500
Consignment - in 2,100
Cash 105,400
3. C
Sales: (215 dresses x 40%) x P580 P 49,880
(215 dresses x 60%) x P640 82,560
Total sales proceeds P 132,440
Less costs to anne (215 dresses x P500) 107,500
Effective commission earned P 24,940

Note: entry for the earned commission is at the

point of sale, i.e.
Cash 132,440
Consignment – in 107,500
Commissions revenue 24,940

4. A
Cost of Good Sold(150,000 + 2,000) x 215/400 P 81,700
5. D

Cost of consigned goods not formally recognized in the

consignee’s records because it does not own it.

6. C

The adjusted balance of the Consignment-out account after

recognition of profit or loss is the cost of the ending
consigned inventory, therefore:
[(400 x P375) + P2,000] x 185/400 P 70,300
7. C
Sales (8 x 12 P1,200) P 115,200
Less : Reimbursable expenses P 2,500
Commissions (P115,200 x 15%) 17,280 19,780
Amount remitted P 95,420
Orig. Cost (15 x 12 x P800) 144,000
8. D Cap. Cost (15 x P35)
Total Cost of Inventory
525
144,525
Sales P115,200
Less Cost of sales (P144,525) x 8/15 77,080
Gross profit P 38,120
Less : Reimbursable expenses P 2,500
Commission expenses 17,280 19,780
Net profit P 18,340
9. A
Inventory of unsold goods (P144,525 x 7/15 ) P 67,445

10. A
Sales (P72,000 x 87.5%)
P 72,000
Less cost of sales (63,000 + P2,000) 65,000
Gross profit P 7,000
Operating expense
Selling expenses P 800
Delivery and installation cost 1,200
Commissions 3,600 5,600
Net profit P 1,400