1. ACCOUNTING FOR CONSIGNMENT TRANSACTIONS
(FINANCIAL ACCOUNTING)
DR. SUNIL KUMAR M N, MBA,MCOM,MA(ECO), PHD,
NET
ASSISTANT PROFESSOR
2. Meaning–Consignment
Sending of goods by a principal to his agent at home or abroad for sale on his behalf and at his risk in
return for commission is known as consignment.
The person (principal) who sends the goods on consignment is called consignor. The agent to whom the
goods are consigned is called Consignee. The goods so consigned are called “Goods sent on
Consignment”.
3. Featuresof Consignment
The possessionof the goods transfers from one party to another.
The consignor is responsiblefor all the risks, expenses, and damages associated with the consigned goods.
The relation of the persons in the consignment is that of the consignor (principal) and the consignee (agent) and not of the buyer and seller.
Only the possession of the goods is with the consignee and not the ownership.
Profit or loss on the sale of the goods belongs to the consignor.
The consignor sends Pro-forma Invoice. At the same time, the consignee sends Account Sales. Account Sales include the details regarding the goods,
sales, expenses, commission, advances, and balances due.
9. Ordinary Commission
When commission payable by the consignor to the consignee at certain fixed percentage on
the gross sales proceeds, is called ordinary commission.
10. Del-credereCommission
The consignee gets a fixed commission for the sale made by him. Some times consignee can sell the goods either for cash or for
credit as per the direction of the consignor. If he sold the goods on credit basis, they have to face the risk attached with debtor i.e.
bad debts. Generally, consignee is not responsible for bad debts losses, only consignor is held responsible.
By an agreement the consignor may transfer the risk of bad debts losses to the consignee. Then, the consignor has to pay the
extra commission to the consignee called “Del-credere Commission”. If consignee fails to collect the amount from debtors, then
such bad debts losses are to be bared the consignee.
11. Over-ridingCommission
Any commission payable by the consignor to the consignee over and above the normal commission is
called Over-riding commission. It is an additional commission. It is payable to the consignee, to give him
an incentive to the consignee to sell the goods at a higher prices than invoice price. This commission is
calculated at certain percentage on the surplus sales i.e. sales exceeding the invoice price.
12. ProformaInvoice
At the time of goods sent to the consignee by the consignor, consignor prepares a statement which is very
similar to the invoice and sent to the consignee is called “Proforma Invoice”.
It is only a memorandum record. It is intended to serves as evidence of consignment and to communicate the
consignee the details of goods sent. Proforma Invoice can be prepared either at cost price or at invoice price. It
gives the consignee an idea about the price at which goods are to be sold and other special instruction.
13. Contentsof ProformaInvoice
1. Name and address of the consignor.
2. Name and address of the consignee.
3. Descriptions of goods sent,
4. Quality of goods sent.
5. Quantity of goods sent.
6. Price of the goods consigned. Etc.,
14.
15. Accounts Sales
The consignee sends to the consignor on account of the goods sold by him in the form of a statement. Such statement is
called Accounts Sales.
Contents of Accounts Sales:
1. Gross sales made by the consignee.
2. Expenses incurred by the consignee.
3. Commission due to the consignee.
4. Advance paid by the consignee to the consignor.
5. Final balance due from the consignee to the consignor.
6. Remittance of cash, if any.
19. Recurring Expenses
Recurring expenses are those expenses which are incurred again and again.
They are mostly incurred after goods reach the consignee’s godown. Usually
they are incurred for selling the goods
20. EXAMPLES OF RECURRING EXPENSES
INCURRED BY THE CONSIGNOR
1. Bank charges.
2. Charges for discounting of bill of exchange and cheque received from
consignee.
3. Bad debts to be incurred by the consignor.
4. Expenses on the goods returned by the consignee.
EXAMPLES OF RECURRING EXPENSES
INCURRED BY THE CONSIGNEE
1. Warehouse charges.
2. Warehouse insurance.
3. Advertisement.
4. Salesmen commission.
5. Brokerage.
6. Salesmen salaries
7. Establishment charges.
8. Expenses incurred on damaged goods.
9. Expenses on goods returned.
10. Selling expenses.
21. Non-recurring expenses:
Non-recurring expenses are incurred on the whole
consignment only once. They are the expenses to make the
goods salable. They are incurred from the time goods are
dispatched by the consignor till the time goods reached the
consignee’s business premises. They are included in the cost
of the goods.
22. EXAMPLES OF NON-RECURRING EXPENSES
INCURRED BY THE CONSIGNOR
1. Packing charges.
2. Loading.
3. Carriage.
4. Freight.
5. Octroi.
6. Insurance.
7. Dock dues.
8. Other forwarding charges..
EXAMPLES OF NON-RECURRING EXPENSES
INCURRED BY THE CONSIGNEE
1. Import or customs duty.
2. Dock dues
3. Unloading charges.
4. Octroi.
5. Railway charges.
6. Cartage or carriage to taking the goods to his business
premises.
23. Loss relating to consignment transactions
Losses of a consignment transaction may be classified into two types viz:
1. Normal Loss and
2. Abnormal Loss.
24. Normal Loss:
Normal losses are those losses which arise due to natural causes and normally they are expected.
Normal losses are uncontrollable and unavoidable. They form a part of the cost of consignment. In
consignment transaction, there is not entry for normal loss, because it is charged to consignment
account, at the time of goods consigned.
Examples of normal Losses are:
o Losses due to evaporation.
o Breakage and leakage.
o Losses due to loading and unloading.
o Drying
o Loss of weight etc.,
25. Abnormal Losses
Abnormal losses are those which arise due to the un-natural or un-expected
causes such as fire, floods, earthquake, negligence etc., they do not occur
normally. Abnormal losses are not unavoidable, but they can be controllable
and avoidable. Hence, abnormal losses should not be charged to consignment
account. But net abnormal loss should be charged to profit and loss a/c.
