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Accounting For Cosignment and Installement
Accounting For Cosignment and Installement
Accounting For:
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3.1 Consignment Sales
Consignment: is a transfer of
possession of merchandise from the
owner to another person who acts as
the sales agent of the owner.
Goods Consignee
Consignor
(Owner of the goods) (Agent)
Net proceeds
+
Account sales
•Consignment-out account
•Consignment-In account
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Nature of a consignment
If the owner of the goods does not have
retail outlets (Or can’t sell it outright), it can
consign the goods to an agent.
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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) &
provide the consignor an account sales
showing all the proceeds and expenses.
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3. Consigned Goods
• 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 its
closing stock.
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There is principal and agent r/nship, and
the law of agency controls the
determination of the obligations and
rights of the two parties.
Consignees are responsible to consignors for
merchandise placed in their custody until it
is sold or returned.
Consignees neither include it in inventories
nor record trade A/P or other liability.
The only obligation of consignees is to give
reasonable care to the consigned merchandise and to
account for it to consignors.
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When mdse is sold by the consignee,
resulting A/R is the property of the
consignor.
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Consignment Vs Regular Sales
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Accounting for Consignor & Consignee
Receipt of shipment
Consignee may record receipt of
shipments in any of several ways:
The objective is to create a memo record of the
consigned merchandise
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Illustration
Assume that Salem PLC, an importer and whole
seller, ships 10 TV sets to NAM PLC (with
consignment), a retailer in Hawasa to be sold at
Br.3,500 each.
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Transactions : Consignee
1. Received consignment shipment of 10 TV
sets to be sold @ Br. 3,500. Consignee has
a policy of maintaining memo entry in
General ledger
2. Paid Freight costs on behalf of consignor
3. Sold all of the consigned TVs at agreed
price of Br.3,500
4. Deducted 10% Commission on
Consignment sales
5. Transferred the Net proceed of Br.31,000
Illustration: RECORDS BY NAM Plc (The Consignee)
1. Consignment In- Salem PLC
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The journal entries to record the payment of freight costs and sales of
the merchandise by the consignee:
3. Cash 35,000
Consignment In- Salem PLC 35,000
[sales of 10 TV sets at 3,500 each]
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4. Consignment In- Salem PLC 3,500
Commission Revenue- Consignment Sales 3,500
To record 10% commission earned on TV sets sold
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NAM Plc
Hawasa
Account Sales
Hamle 30, 2008
Sales for account and risk of: Salem PLC
Addis Ababa
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Accounting for Consignor
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Upon shipment
1) The entry to be made under both alternatives would be:
Consignment Out-Nam 25,000
Inventories 25,000
Alternative II)
1) SAME
2) No entry required.
3) Consignment sales of Br.35,000 reported by consignee (NAM)
Alternative I)
a)
Cash 31,000
Consignment Out- Nam 500
Commission Expense- Cons Sales 3,500
Consignment Sales 35,000
b)
Cost of Const. sales 25,800
Consignment Out- Nam 25,800
Partial I/St.
Consignment sales 35,000
Less: Cost of Cons Sales 25,800
Commission 3,500 29,300
Gross profit on consignment sales 5,700
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Alternative II)
Cash 31,000
Freight Out (Sales) Expense 500
Commission Expense 3,500
Sales 35,000
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Accounting for Partial Sale of Consigned Merchandise
Assume that 4 of the 10 TV sets on consignment are sold at
the end of the accounting period. Package cost=Br.300
Consignment sales of Br.14,000 & payment of Br.5,000 received.
Charges by consignee: freight costs of 500 and comm. of 1,400
Alternative I)
Cash 5,000
Trade Accounts Receivable 7,100
Consignment Out- Nam 500
Commission Expense- Cons Sales 1,400
Consignment Sales 14,000
Cost of Consignment Sales 10,320
Consignment Out- Nam 10,320
2500+30+50=2580*4
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Other Issues
Return of Unsold Merchandise by Consignee
return shipment and repair costs should also be recognized as expense by
consignor
Bad Debts
Normally, accounted by Consignor
If (del credere agent) special commission based: Borne by Consignee
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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-in Account
$ $
Bank – consignee’s expenses x Bank – sales x
Commission Received x Debtors – sales x
- ordinary x
- del credere x
Debtors – disc. allowed x
Debtors – bad debts x
Bank / Bill payable – to consignor x _
x x
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