a powerpoint presentation about consignment sales.

1. Consignment
Accounting for Consignment Sale Transactions
A consignment constitutes the transfer of possession of merchandise without the transfer of title from the owner,
called the consignor, to another person, called the consignee. The consignee acts as an agent in behalf of the
consignor for the purpose of selling the goods for a commission.
The shipment of goods to the consignee is not treated as a sale. Although a transfer of goods has taken place, it is not the
intent of either the consignor or the consignee that sale and purchase transactions take place. Title of the goods remains
with the consignor, and recognition of the sale is deferred until goods are transferred to a third party by the
consignee. In other words, the intent of the parties is to transfer title directly from the consignor to the third party.
A modified version of the sales basis (regular sales) of revenue recognition is used by the consignor. Revenue is
recognized only after the consignor receives notification of sale and the cash remittance from the consignee.
The merchandise is carried throughout the consignment as the inventory of the consignor, separately classified as
Merchandise Inventory on Consignment. It is not recorded as an asset on the consignee’s books. Upon sale of the
merchandise, the consignee has liability for the net amount due the consignor. The consignor periodically receives
from the consignee account sales that show the merchandise received, merchandise sold, expenses chargeable to the
consignment, and the cash remitted. Revenue then is recognized by the consignor. At that time, the transaction is recorded as a
sale on the books of the consignor.

2. Consignments
When an entity delivers its product to a dealer for distributor for sale to end customers, the entity needs to determine whether
the contract is a sale or a consignment arrangement.
The following are indicators of a consignment arrangement:
• The entity controls the product until a specified event occurs, such as the sale of the product to a customer or until a
specified period expires
• The entity can require the return of the product or transfer the product to another party
• The dealer does not have an unconditional obligation to pay the entity for the product (although it might be required to pay
a deposit).
A common principal-agent relationship involves consignments. In these cases, manufacturers (or wholesalers) deliver goods
but retain title to the goods until they are sold. This specialized method of marketing certain types of products makes use of an
agreement known as a consignment.
Sale The dealer or
distributor has
obtained control of
the product
Recognize revenue when the product is shipped
or delivered to the dealer or distributor
(depending on the terms of the contract.)
Consignment
The dealer or distributor
has not obtained control
of the product
Recognize revenue when the dealer or distributor
sells the product to a customer, or when the dealer or
distributor obtains control of the product (i.e. after a
specified period of time expires).

3. Under this arrangement, the consignor (manufacturer or wholesaler) ships merchandise to the consignee (dealer),
who is to act as an agent for the consignor in selling the merchandise. Both consignor and consignee are interested in
selling – the former to make a profit or develop a market, the latter to make a commission on the sale.
The consignee (dealer), who is to act as an agent for the consignor in selling the merchandise, accepts the
merchandise and agrees to exercise due diligence in caring for and selling it. The consignee remits to the consignor cash
received from customers, after deducting a sales commission and any chargeable expenses. Agent’s performance
obligation is to arrange for principal to provide goods or services to a customer.
In consignment sales, the consignor uses a modified version of the point-of-sale basis of revenue recognition. That is,
the consignor recognizes revenue only after receiving notification of the sale and cash remittance from the
consignee.
The consignor carries the merchandise as inventory throughout the consignment, separately classified as inventory
(consignment). The consignee does not record the merchandise as an asset on its books. Upon sale of the
merchandise, the consignee has a liability for the net amount due to the consignor.
The consignor periodically receives from the consignee a report called account sales that shows the merchandise
received, merchandise sold, expenses chargeable to the consignment, and the cash remitted. Revenue is then recognized
by the consignor.

4. Rights and Responsibilities of the Consignee
Before goods are transferred on consignment, a written agreement should specify clearly the intent of the parties. The
agreement should address such issues as the amount and type of the consignee’s expenses to be reimbursed by the consignor,
how the consignee’s commissions are to be computed, when commissions are to be paid, the credit terms and conditions, if
any, to be considered by the consignee in granting credit, and the responsibility for collection of receivables.
The agreement should be complete and attempts to avoid potential points of conflict. For items not provided for in the
agreement that result in litigation, the laws of bailment and agency apply.
Rights of the Consignee
Some of the more important rights and responsibilities of the consignee are:
1. Compensation.
2. Reimbursement for Advances and Necessary Expenses.
3. Granting of Credit.
4. Warrant of Consigned Goods.
Responsibilities of the Consignee
5. Care and Protection for Consigned Goods.
6. Identification of Consigned Goods and Receivables
7. Due Care in Granting and Collecting Receivables
8. Timely Periodic Reporting of Sales and Collections

5. Accounting by the Consignor
The journal entries to be made on the books of the consignor vary, depending on:
• Whether consignment transactions are recorded in separate ledger accounts for the purpose of determining profits on
consignment sales, or are simply combined with the regular account balances, and
• Whether a perpetual or periodic inventory system is used
Because title to the merchandise is held by .the consignor but physical possession is held by the consignee, special
accounting records must be maintained by the consignor for control purposes.
No revenue is recognized until a sale is made by the consignee. Upon shipment of the merchandise by the consignor,
an inventory account is established on the consignor's books to identify the consigned merchandise.
Any consignment expenses paid by the consignor are added to the inventory balance as added costs. The
consignee does not make an entry for receipt of the Inventory in the general ledger; however, memorandum
control records usually are kept.
Any reimbursable expense paid by the consignee is charged to a receivable account by consignee and added to the
inventory balance by the consignor.
When a sale is made, consignor recognizes the sale as revenue according to one of the revenue recognition methods, and the
consignee recognizes the commission as revenue on the transaction.

6. Consignor’s:
1. Consignment transactions recorded separately – this method determines consignment profit separate from regular sales. An inventory
account called as Inventory on Consignment* is used to record transactions in relation to consignment.
Inventory on Consignment* account is debited for:
• Cost of goods shipped on consignment
• Expenses related to consignment incurred by the consignor
• Reimbursable expenses related to consignment paid by the consignee.
Inventory on Consignment* account is credited for:
• Cost of goods returned by the consignee
• Cost of consignment sales and expenses relating to consignment
*account term “consignment-out” maybe alternatively used when consignment profit can be calculated separately
2. Consignment transactions not recorded separately – consignment transactions are treated like a regular type of sales. Determination of
consignment profit is not required because it is already part of the profit of the entire entity
3. Consignment transactions not recorded separately – consignment transactions are treated like a regular type of sales. Determination of
consignment profit is not required because it is already part of the profit of the entire entity

7. Accounting by the Consignee
Accounting procedures established by the consignee must recognize that goods received on consignment are not owned. However, as noted
earlier, the consignee must:
• Maintain records and controls that permit the identification of:
a. Goods held on consignment and
b. Related receivables and reimbursable expenses, and
• Prepare periodic reports. The consignee normally creates a special account:
Consignor Receivable or Consignor Payable* ,
Consignee’s
1. Consignment transactions recorded separately – under this method, two accounts are needed to be maintained in relation to
consignment transactions:
Consignor receivable* account is:
• debited for expenses paid by the consignee but chargeable to the consignor
• credited when remittance is made to the consignor
Consignor payable* account is:
• credited for the sales by the consignee
• debited when remittance is made by the consignor
* account term “consignment-in” maybe alternatively used when consignment profit can be calculated separately
2. Consignment transactions not recorded separately – consignment transactions are treated like a regular type of sales. Determination of
consignment profit is not required because it is already part of the profit of the entire entity.
Illustrations in this chapter show transactions recorded separately, because it is more convenient on the consignor and consignee’s books to
determine the results of operations

8. Accounting by the Consignee
Accounting procedures established by the consignee must recognize that goods received on consignment are not owned.
However, as noted earlier, the consignee must:
• Maintain records and controls that permit the identification of:
a. Goods held on consignment and
b. Related receivables and reimbursable expenses, and
• Prepare periodic reports. The consignee normally creates a special account:
Consignor Receivable or Consignor Payable* ,
Consignee’s
Consignment transactions recorded separately – under this method, two accounts are needed to be maintained in relation
to consignment transactions
Consignor receivable* account is:
• debited for expenses paid by the consignee but chargeable to the consignor
• credited when remittance is made to the consignor
Consignor payable* account is:
• credited for the sales by the consignee
• debited when remittance is made by the consignor
* account term “consignment-in” maybe alternatively used when consignment profit can be calculated separately

9. The following costs and expenses for the consignment transactions should carefully be noted:
• Items to be allocated between sold and unsold items:
a. Freight cost paid by the consignor upon shipment
b. Freight and cartages paid by the consignee upon receipt of the shipment
c. Insurance freight of consigned goods
d. Packaging costs of consigned goods
e. Costs and fees such as repairs, installation of devices paid by the consignor and/or consignee related to the consigned goods.
• Items chargeable to the sold units:
a. Commissions
b. Delivery and installation
c. Advertising
d. Reconditioning on delivered units to customers
e. Insurance in transit to customers
f. Expenses related to returned units delivered
Consignment Sales
The accounting procedures regarding consignment sales under PFRS 15 still remains and for purposes of overview regarding
the application of PFRS 15 on consignment:
• Manufacturers (or wholesalers) deliver goods but retain title to the goods until they are sold.
• Consignor (manufacturer or wholesaler) ships merchandise to the consignee (dealer), who is to act as an agent for the
consignor in selling the merchandise. Consignee makes a commission on the sale.
• Consignor makes a profit on the sale and carries merchandise as inventory.