Accounting For Special Transactions Unit 4 Consignment Meaning Consignment Account deals with a situation where one person sends goods to another person on the basis that goods will be sold on behalf of and at the risk of the former its to be noted * Principal - The party which sends the goods is called Consignor or Principal. * Agent- The party to whom goods are sent is called consignee or agent. * Ownership of the property- ownership of the goods remains with the consignor; consignee does not become the owner even though they are in his possession + Proforma Invoice- Principal does not send an invoice to the agent. He sends only a proforma invoice which is like an invoice but not realy one. It provides information regarding particulars of the goods sent. « Expenses: The agent recovers from the principal all expenses incurred by him on the consignment. This can be changed by agreement between two parties. + Advance to Principal Agent usually gave an advance to principal in the form of bill of exchange or cash. Itis adjusted against the sale proceeds of the goods. * Commission- agent receives commission for the work. Commission is calculated on the basis of gross sale. + Ordinary Commission- here agent is not responsible for any bad debt that may arise + Del-credere Commission — here agent is responsible for bad debs. It is calculated on total sales, not merely on credit sales until and unless agreed eg. Cash sales =50000, credit sales=50,000 del-credere 2%calculate Del - credere commission Solution Tolalsales= cash sales + credit sales 50,000 + 50,000=100,000 Del- credere Commission Total Sales x Rate of commission 2 = 100,000 x 75 = 2000 In — Here commission is charged on Total Sales because question is silent herein case question specifically says del-credere commission to be charged on credit sales then commission =1000 i.e. 2% on 50,000. Explani = Accounts Sales-Periodically the agent sends to the principle a statement called Account Sales. It sets out the sales made by the agent, the expenses incurred on behalf of the principal, the commission eamed by the agent and the balance due to principal + Ascertainment of profit or loss — firm usually likes to ascertain the profit or loss on each consignment