ACCOUNTING FOR SPECIAL

TRANSACTIONS

MODULE 3

CONSIGNMENT SALES

Professor Zenaida VC Manuel Advanced Accounting

 CONSIGNMENT SALES
Learning Outcome 1 Nature and characteristics
pages 137 to 138 of the textbook

• Consignment defined
• Consignment sales distinguished from regular sales

• Advantages
• Rights of consignee and consignor
• Duties of consignee
Professor Zenaida VC Manuel Advanced Accounting 1
 CONSIGNMENT SALES
Learning Outcome 2: Accounting for consignment sales
under “Profit is determined separately” method
Preparation of an account sales
Consignment In and Consignment Out Accts
Illustration 1 assuming all consigned goods
are sold.
Illustration 2 assuming not all consigned
goods are sold.
Illustration 3 assuming some goods are
returned.
Learning Outcome 3: Alternative Method of Recording
Consignment profit not determined separately
Professor Zenaida VC Manuel Advanced Accounting
 LO 1
Consignment is a physical transfer of goods without transfer of
title of ownership to an agent called the consignee tasked to sell
the goods of the owner called the consignor. Consignee receives
a fee or commission.
As soon as goods are sold, the cash collected by consignee is due
for remittance to the consignor. Legal provisions for Sales,
Agency and Bailments apply.
 
While the goods are in the hands of consignee, the goods are
owned by the consignor and must be included in the latter’s
assets

Professor Zenaida VC Manuel Advanced Accounting

 LO 1
Consignee’s duties: must take good care of the goods like
a good father of a family, render an account sales to
report what happened to the consigned goods (sold) and
what expenses were incurred agreed upon to be
reimbursed or deducted from the collections (including
the commission). This triggers right of the consignor to
demand and receive payment for the net amount due.
From this report called Account Sales prepared by
the consignee, entries are prepared to update the
consigned goods shipped by the consignor: sales made by
the consignee, expenses to be reimbursed including
commission, and the amount still due for remittance.
 LO 2- CONSIGNEE’S VIEWPOINT
Consignee uses the title Consignment In to account for its obligation to pay which
should be credited when sales are made to represent a payable (not a revenue)
and debited for expenses including commission which he wants to charge to the
consignor as agreed upon to decrease the payable credited. Assuming consignor
is AVA Cosmetics:
CONSIGNMENT IN-AVA COSMETICS
Debit Credit
for Expenses for Sales made
reimbursable
This is a real account, the expenses debited are charged (due from) to Consignor
and the sales credited are payable to the consignor. Normally this will show a
credit balance representing the amount due to Consignor. When remittance is in
full, this account is debited to close the account, that is if all the goods were sold.
 LO 2- CONSIGNOR’S VIEWPOINT
Consignor uses the title Consignment Out which is like the Joint
Operation account, debited for the following: a) merchandise shipped,
b) transportation and insurance expenses incurred by consignor for
the shipment and c) expenses paid by consignee which were agreed to
be charged against sale of consigned goods. The account is credited
for the following: a) reported sales by the consignee and b) and
merchandise returned by consignee. Assuming BESS is the consignee:
CONSIGNMENT OUT - BESS COSMETICS
Debit Credit
Goods shipped to B Sales reported by Bess
Expenses of AVA Goods returned by Bess
Expenses of Bess
This is a nominal account, the balance represents consignment profit or loss if all
the goods net of returns are sold.
ILLUSTRATION 1: All consigned goods are sold
If all the units consigned are sold, then the balance of the
consignment Out account will represent consignment profit (credit
balance) or consignment loss (debit balance). So the last entry
assuming it is a profit is to debit consignment out to close or zero
balance the account and credit consignment profit. To illustrate:
AVA Cosmetics consigned on July 15, 2020, 100 make up kits to
Bess Cosmetics costing P75, sales price at a markup of 100% of cost.
Bess will receive a 10% commission and be reimbursed for all
expenses. Ava paid freight to ship to Bess, P1,500. After three
months Bess sold all the kits, sent the following Account Sales
enclosing the remittance:
 
Professor Zenaida VC Manuel Advanced Accounting
 ILLUSTRATION 1

ACCOUNT SALES
For the account of AVA Cosmetics
September 30, 2022
Sales (100 make up sets) P15,000

Less: 10% Commission P1,500

Cartage In 500
Advertising 1,000
Delivery 400 3,400

Amount for remittance P11,600

Professor Zenaida VC Manuel Advanced Accounting

 ILLUSTRATION 1

Note that shipment is only a memorandum entry, since as

agent no purchase was made and the goods are entrusted
only to consignee until it is sold. The only nominal account
of the consignee is the Commission Income which
represents her consignment profit.
Consignor debits consignment out for the shipment cost, shipping
cost paid by consignor and expenses charged by consignee
including commission. Consignor credits consignment out for the
sales. Last entry of consignor is to recognize profit by debiting
consignment out ( to close) and crediting consignment profit. It is
similar to the title Income Summary which represents a nominal
account. Professor Zenaida VC Manuel Advanced Accounting
 ILLUSTRATION 1
What if the consignee remitted only P10,000?
Entry for remittance will change. Last entry format of
the consignee will be the same but the amount will be only
P10,000, The consignment in will still have a balance on the
credit side representing the amount still due of P1,600. AT
the end of the accounting period make a reclassifying entry
Debit Consignment In to close and credit Due to Consignor
and present this as a current liability:
In the consignor’s book, remittance entry will be:
Cash 10,000
Due from Consignee 1,600 present as current asset

Consignment Out 3,400

Consignment Out 15,000
ILLUSTRATION 2, BESS SOLD ONLY 60
SETS OUT OF THE 100 RECEIVED.
Same situation but Ava sold only 60 kits, gave an account sales
and enclosed remittance: Some figures should be changed (in
asterisk) as these are based on sales only: sales, commission,
delivery.
ACCOUNT SALES
For the Account of AVA
 Sales (6030,
September x 150)
2020 *P9,000
Less: 10% Commission *P 900
Cartage In 1,500
Advertising 1,000
Delivery * 240 2,640

Amount for remittance P6,360

First two entries in SLIDE 10 for receipt/shipment of goods in Bess bks will still be the same except for nos 3,4,5,6.
OBJECTIVE 3: ILLUSTRATION 2, SOLD ONLY 60 SETS.
FINANCIAL STATEMENTS OF CONSIGNOR
Presented among the current assets are the following:
Due from Consignee P 1,600
Merchandise Inventory 3,000
Deferred Consignment Expenses 800
A reclassifying entry is needed for this before preparing a Balance
sheet:
Merchandise Inventory 3,000
Deferred Consignment Expenses 800
Consignment Out 3,800
The Consignment Out account will be closed. This entry should be
reversed first day of the next accounting period so that subsequent
consignment transactions may be recorded again in the Consignment
Out account. Due From Consignee is a receivable account when there is
no full remittance.
ILLUSTRATION 3, BESS SOLD 60 SETS OUT OF
THE 100, AND RETURNED 10 SETS.
Assume the same data as in Illustration 2 where only sixty
units were sold out of the 100, but Bess returned 10 units
and paid P100 freight for the return. Unsold sets will be
30. The account sales will have an added expense for the
freight P100 decreasing the remittance to P6,260.
It is in the books of the consignor that computation will
be more complicated but this following table will serve as
your guide. Record return of shipment, change last two
entries based on account sales and profit computation.
Before computing for profit, Consignor must prepare
an allocation table (slide 19):
 Sales with some units returned (10), unsold (30), sold 60 out of
the 100 units shipped.
ACCOUNT SALES
For the account and risk of: No. 22
AVA Company July 8, 2022
Sales (P150 x 60) P 9,000
Less charges: Freight In (100 x P5) P500
Freight for returns 100
Delivery 240
Advertising 1,000
Commission 10% 900 (2,740)
For remittance 6,260
Remittance (check enclosed) (6,260) DO IT It!
Balance 0
Returned 10 make up sets What will happen t0 this?
On Hand 30 makeup sets
ILLUSTRATION 3: 60 sold, 10 sets returned, 30 unsold
ILLUSTRATION 4, CONSIGNEE REQUIRED TO
GIVE A CASH ADVANCE.
The consignee may be required by the consignor to give an advance payment
on the consigned goods received. To illustrate, assume that consignee
received 150 pieces of jewelry to be sold at a price of P500. 15% commission
and consignee is required to advance 40% of the selling price to be deducted
proportionately as sales are made.
ACCOUNT SALES
For the account and risk of: Saviour Company July 8, 2020
Sales (P500 x 100) P 50,000
Less charges: Freight P 2,500
Commission 7,500 10,000
For remittance 40,000
Less Advances 20,000 P200 X 100 units sold
Balance (see check enclosed) P20,000
On Hand 50 jewelry sets
ILLUSTRATION 4, CONSIGNEE REQUIRED TO GIVE
A CASH ADVANCE.
ILLUSTRATION 4, CONSIGNEE GAVE A CASH ADVANCE.
If only 100 sets are sold out of the 150, consignor must compute for
consignment profit and inventoriable cost for the 50 on hand. See
that the consignment out account will still have a balance representing
inventoriable cost. An alternative way of computing for profit is to
compute for inventoriable cost first:

Cost of unsold P15,000 (P300 x 50) plus Freight 833 (2,500 x 50/150) =
15,833. If you T account Consignment Out in slide 21 it will produce a debit
balance of P5,000, but the balance should be P15,833 representing
inventoriable cost. To make this possible, make a debit entry for P10,833
for the profit:
Consignment Out 10,833
Consignment Profit 10,833
To prove this: Sales 50,000 -Cost of sales 30,000 - Freight 1,667 -
commission 7,500= P10,833 profit.
ILLUSTRATION 4, CONSIGNEE GAVE A CASH ADVANCE.
Shipped 150 Sold 100 Unsold 50

Cost of shipment@300 45,000 30,000 15,000

Charges of consignee:
Freight 2,500 1,667 833
Commission 7,500 7,500

Total 55,000 39,167 15,833

Sales P50,000 –cost and expenses 39,167= P10,833

Inventoriable cost 15,833

Pwede din T account ka Consignment Out: Debit Credit

Cost of shipment 45,000 Sales 50,000
Charges by Consignee 2,500
7,500
Profit 10,833
You will get a balance of P15,833 representing unsold goods on consignment and deferred expenses.
Take note on side 21 how the advances is presented and in slide 22 how it is recorded. Advances is an asset in
consignee’s book if still not applied against sales and returns and is a liability in consignor’s book.
OBJECTIVE 3 ALTERNATIVE METHOD : CONSIGNMENT
PROFIT NOT RECORDED SEPARATELY.

Kindly refer to page 140 (Consignee’s viewpoint) and page 142

(Consignor’s viewpoint). Accounting approach is similar as
discussed in intermediate or lower accounting where you use
the regular nominal account titles sales and purchases and
cost of sales. The method I illustrated is in the use of
peculiar account titles: Consignment In and consignment Out
to identify separately the regular accounts because these
transactions will be entered in the same books where sale of
regular stock and its operating expenses are also recorded.
 END OF MODULE 3

THANK YOU

THAT IN ALL THINGS GOD MAY BE GLORIFIED

Prof Zenaida VC Manuel

Advanced Accounting 1