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Consignment

Consignment
Goods Net proceeds + Account sales

Consignor (Owner of the goods)

Consignee (Agent)

Consignment account Goods sent on Consignment account Consignee account

Consignor account

Nature of a consignment
If the owner of the goods does not have retail outlets, he can consign the goods to an agent. The agent will sell the goods for him and receive a commission in return.

1. Consignor The owner of the goods who sends the goods to an agent for sale. 2. Consignee Who sells the goods for the consignor. Sells the goods and collects the money from the customers. Will pay the consignor the net proceeds (Proceeds Expenses Commission) and provide the consignor an account sales showing all the proceeds and expenses.
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3. Goods sent on consignment Goods sent on consignment are the property of the consignor until the goods are sold. The consignor should include all the unsold goods on consignment in his closing stock.

1.

Consignment account

Consignors Books
Consignment Account

It is a profit and loss account for the consignment.

Expenses

Income

2. Consignee account
Consignee Account

Amount owing form consignee


e.g. Sales

Amount owing to consignee


e.g. Expenses, commission

3. Goods sent on consignment account


Goods sent on consignment account

Transferring to trading account

Cost of goods sent

4. Summary of procedures
Transactions Double entries

1. Goods sent on consignment

2. Expenses incurred by the consignor. 3. Expenses incurred by the consignee and the commission payable to the consignee. 4. Sales recorded on the account sales

Dr Consignment Cr Goods sent on consignment Dr Consignment Cr Bank Dr Consignment Cr Consignee


Dr Consignee Cr Consignment
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5. Normal loss
Normal loss of stock of the consignment which was not insured. (Normal loss: damaged stock, obsolete stock)

No entry

6. Insurance claim received for normal stock loss


7.

Dr Bank Cr Consignment Dr Bank/Insurance company Dr Profit and Loss Cr Consignment(Total loss) Dr Bank/Bills receivable Cr Consignee

Abnormal loss
Abnormal stock loss credited to consignment account. (Abnormal loss: fire loss, burglary loss, stolen in transit)

8. Payment from the consignee by cheque or bill

9. Cost of goods sent on consignment credited to trading account.

Dr Goods sent on consignment Cr Trading account

10. Profit on the consignment is Dr Consignment transferred to the profit and loss account. Cr Profit and loss (Reverse the entries if it is a loss.)
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Goods sent on consignment account


$ $

9.

Trading

1.

Consignment

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Consignment
$ $

1. 2. 3.

Goods sent on consignment Banks-consignors expenses Consignee- consignees expenses consignees commission 10. P & L-profit on consignment

x x
x x x x

4. 6. 6. 7.

Consignee-sales Bank/Insurance Co.-claim Bank/Insurance Co.-claim Profit and Loss-net stock loss

x x x x

_ x

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Consignee
$ $

4.

Consignment-sales

_ x

3. Consignment-consignees expenses consignees commission 8. Bank-settlement from consignee

x x x x

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Consignee
$ $

Consignment-sales

18,000
______ 18,000

Consignment-expenses -commission 8. Bank

2,400 1,800 13,800 18,000

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E. Bad debts of Consignments


A consignee(agent) sells goods and collects money on behalf of the consignor. If he cant collect the debts, these debts should be treated as the bad debts of the consignor.
Accounting entries in the books of the consignor:

Dr Consignment Cr Consignee

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Consignment
$

Consignee-bad debts

Consignee
$

Consignment-bad debts

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If a consignee receives an additional commission (del credere commission), he must bear all the losses from the bad debts. In case of a bad debts arising from sales of goods on consignment, no entry is required in the books of the consignor.
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Accounting entries in the books of the consignee Dr Bad debts Cr Debtors (with the bad debts borne by the consignee personally)

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Valuation of stock
If there are unsold goods on consignment at the end of the accounting period, the value of the unsold stock will be carried down to the following period.

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Consignment
$ $

Year 1
x x

Year 1 Balance c/d value of unsold stock

x x

Year 2 Balance b/d

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Valuation of stock = Consignors Cost +Consignees Expenses

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Consignors cost = Total consignors cost * Units of closing stock / Total units of goods SENT on consignment = [Cost of goods on consignment + Consignors expenses] * Units of closing stock / Total units of goods SENT on consignment

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Consignees expense = Total consignees expenses (excluding marketing expenses) * Units of closing stock / Total units of goods RECEIVED by consignee (after normal loss)
Marketing expenses e.g. advertising

expenses,ordinary commission,del credere commission, salesmens salaries, bad debts, discounts allowed, delivery charges(to customers), selling expenses, distribution expenses.
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Example

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Consignment
$

Goods on Consignment Bank - freight - insurance Chan port charges

60,000 500 200 700 - delivery charges to warehouse 1,280 - advertising 1,000 - delivery charges to customer 900 - dis. allowed 320 - ordinary com. 4,700 ($94000*5%) - del credere com. 500 (50000*1%)

Chan sales (500+440)*$100

94,000

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Workings
Value of the stock loss (10 boxes) Stock loss = (1,000 * $60 + $500 +$200) * 10/1,000 = $607

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Consignment
$

Goods on Consignment Bank - freight - insurance Chan port charges

60,000 500 200 700 - delivery charges to warehouse 1,280 - advertising 1,000 - delivery charges to customer 900 - dis. allowed 320 - ordinary com. 4,700 ($94000*5%) - del credere com. 500 (50000*1%)

Chan sales (500+440)*$100 Bank claim Profit and Loss stock loss (607-300)

94,000

300 307

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Workings
Value of the Closing Stock Consignors Cost: ($1,000 * $60 + $500 + $200) * 50/1,000 Consignees Expenses: ($700 + $1,280) * 50/990

3,035

100
3,135

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Consignment
$ $

Goods on Consignment Bank - freight - insurance Chan port charges

60,000 Chan sales 500 (500+440)*$100 200 Bank claim 700 Profit and Loss stock loss - delivery charges to warehouse 1,280 (607-300) - advertising 1,000 Balance c/d - delivery charges to customer 900 - dis. allowed 320 - ordinary com. 4,700 ($94000*5%) - del credere com. 500 (50000*1%) Profit and Loss Profit on consignment 27,642
97,742

94,000 300 307 3,135

97,742
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Chan
Consignment - sales $ 94,000 Consignment -port charges -delivery changes to warehouse -advertising -delivery charges to customers -dis. allowed -ordinary com. -del credere com. Bank
$

700

1,280 1,000
900 320 4,700 500 84,600 94,000

94,000

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Consignees books
A consignee collects sales proceeds and pays expenses on behalf of the consignor. A consignor account should be maintained to record the money due to or due from the consignor.

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Summary of procedures
Transactions Double entries

1. Goods received form consignor. 2. Expenses paid by the consignor. 3. Commission received (ordinary and del credere commission). 4. Expenses paid on behalf of the consignor.
5. Discounts allowed to customers/

No entry
No entry Dr Consignor Cr Commission Received

Dr Consignor Cr Bank Dr Consignor Cr Debtors


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6. Bad debts borne by the consignor.


7.Bad debts borne by the

consignee personally. (When the consignee receives a del credere commission, he should bear all losses from bad debts) 8. Cash sales
9. Credit sales 10. Payment to the consignor by cheque or bill

Dr Consignor Cr Debtors Dr Profit and Loss/Bad Debt Cr Debtors Dr Bank/Cash Cr Consignor Dr Debtors Cr Consignor Dr Consignor Cr Bank/Bill payable
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Consignor Account
$ $

Bank consignees expenses Commission Received - ordinary - del credere Debtors dis. allowed Debtors bad debts Bank / Bill payable to consignor

x x x x x x x x

Bank sales Debtors sales

x x

_ x

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Example The facts are the same as in the pervious example, but the transaction would be shown in the books of consignee. In Chans Books Tang Consignor Account
Bank -port charges -delivery changes to warehouse -advertising -delivery charges to customers Commission Received -ordinary -Del credere Bank to consignor 4,700 500 84,600 94,000 94,000
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$ 700
1,280 1,000 900

Debtor sales (500 x $100) Bank sales (440 x $100)

$ 50,000 44,000

Further Considerations
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A. Consignments and the Final Accounts


The accounts related to a consignment would be disclosed in the final accounts as follows:

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In Consignors Book

Trading and Profit and Loss Account


$ Opening Stock Add Purchases T Less Goods on Consignment C Less Closing Stock Cost of Goods Sold Gross Profit Expenses Stock Loss of Consignment Net Profit $ N N N N N N N N C T T Sales $ N

Gross Profit Consignment Profit

N N C

N=figure from normal trading; C=figure from Consignment T= Total figures 38

Balance Sheet (Extract)


$ $ Current Liabilities T OR Consignee Account C (if it is a credit balance) C

Current Assets Stock (N+C) Consignee Account (if it is a debit balance)

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In Consignees Book
The only entries needed is for the commission received.

Trading and Profit and Loss Account


$ Opening Stock Purchases Less Closing Stock Cost of Goods Sold Gross Profit $ N N N N N N N N N Sales $ N

Expenses Bad Debts Bad Debts (If he has received a del credere commission, he will bear the Consignments bad debts) C Net Profit T

Gross Profit Commission Received (from consignor)

N N
C

T
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Balance Sheet (Extract)


$ $ Current Liabilities N OR Consignor Account C (if it is a credit balance)

Current Assets Stock Consignor Account (if it is a debit balance)

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Consignments and Joint Ventures:


If the party to a joint venture sends some goods to an agent for sale, the transactions will be entered as follows: No consignment account is opened
If no consignment account is kept, all the transactions of the consignements should be recorded in the foint venture account.

A consignemnt account is opened

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(i) No consignment account is opened

Joint Venture Account


$ Bank joint venture expenses Bank consignment expenses incurred by the consignor Consignee consignment expenses incurred by the consignee X X X $

Bank joint venture sales Consignee consignment sales Stock c/d unsold stock of joint venture and consignment

X X

Profit and Loss share of profit


Bank settlement

X
X

X
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Memorandum Joint Venture Account


$ Expenses joint venture and consignment Share of Profit: A X X Sales joint venture and consignment Stock c/d joint venture and consignment X X $

X
X X

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(ii) A consignment account is opened

Joint Venture Account


$ Bank joint venture expenses Profit and Loss share of profit Bank settlement X X X $

Bank joint venture sales Goods Sent on Consignment Consignment profit Stock c/d unsold stock of joint venture only

X X X

X X

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Consignment Account
$ Goods Sent on Consignment Bank expenses Consignee expenses Joint Venture consignment profit X X X X $

Sales joint venture only Goods Sent on Consignment Consignment profit Stock c/d joint venture only

X X X X

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Memorandum Joint Venture Account


Expenses joint venture only Share of Profit: A B X X X X $ X Sales joint venture only Goods Sent on Consignment Consignment profit Stock c/d joint venture only $ X X X X X

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