CMA Intermediate || Consignment Accounting || Notes

 Study Notes Of Financial Accounting

Consignment Accounting

Meaning of Consignment Sale

Where one person in the firm sends goods to another person or firm on the basis that the goods will be sold on and at the risk of the former is known as consignment sale.

Meaning of Account Sales

It is a statement which is send by the consignee to the consignor. After the sale of goods.it is known as account sale. 

this account sale contains the information like, gross value, expenses and commission of the consignee, advance paid by the consignee and net amount due by consignee etc.  

Meaning of Consignor

The Person who sends the goods to the another person is known as consignor. They also called as principal.

Meaning of Consignee

The person who received the goods is Known as consignee. They also called the Agent.

Types of Commission in consignment

There are three types of commission allows by the consignor to the consignee

1. General Commission
2. Over ridding Commission
3. Del-credere Commission

General Commission

general commission is a commission which a consignee gets as considration from the consignor for the sale made on behalf of the consignor.

In this case consignee does not guarantee that all those who buy on credit will pay up. in simple words the consignee is not responsible for the bad debt.

Over ridding commission

over ridding commission is a commission which is allows by the consignor to the consignee  to increase the sale volume/sale price. 

It is calculated as per instruction mention in the question.

Del-Credere Commission

Del-credere commission is a additional commission allows by the consignor to the consignee for which the consignee guarantees for debt.

This commission is save consignor from loss of bad debt only.

The consignee is responsible for bad debt due but not for loss due to dispute b/w the buyer and seller.

The del-credere Commission is payable on total sales and not merely on credit sales.

Accounting treatment in the Books of consignor

The consignor will prepare the following accounts in his books

• Consignment account
• Consignor Account

Consignment account

Consignment account is prepared by the consignor to know the profit or loss on the consignment. 

It is not a personal account, it is a nominal account

Consignee Account

The Consignee account is prepared by the consignor to know the how much amount is to taken from the consignee from sale of goods.

It is a personal account.

Valuation of the closing Stock

The stock lying unsold with the consignee at the end of the accounting year is called closing stock ( which is also know as stock on consignment) usually valed at cost.

              

          cost price of the unsold goods                                                   xx

     (+) Proposnate Non-Recurring Expenses By the Consignor              xx

     (+) Proposnate Non-Recurring Expenses By the Consignee              xx

                                      Value Of Closing Stock                                 xxx

 

Accounting treatment in the Books of Consignee

The consignee will prepare the following accounts in his books

• Consignor Account

• Commission Account

Consignor account

Consignor account is prepared by the consignee to know the how much amount is to be taken/give by the consignor.

Its is also a personal account

Commission Account

commission account is prepared by the consignee to know the how much amount of commission is to be taken by the consignor.

It is a nominal account

Accounting Treatment Of Bad Debt In the books of Consignor

• If Del-Creder Commission IS Allowed
• If Del-Creder Commission IS Allowed

Difference between Consignment And Sale

        Consignment                                                       

• Ownership of the goods is not Transfer to the consignee
• Consignee is not liable for losses
• All expenses are born by the consignor
• The documents sent along with the goods to the consignee is called performa Invoice
• Consignee does not become debtor on receipt of goods. he becomes debtor on sale of goods
• Consignee receives commission on sale of goods 

             Sale

• Ownership of the goods is transferred to the buyer
• Buyer is liable for losses
• Buyer meets his own expenses
• The document send on sale of goods is known as invoice
• Buyer becomes the debtor immediately on receipt of goods
• Buyer does not receive any commission. He earn profit on sale of goods

Difference between Normal Loss or Abnormal loss

Normal Loss

• Normal Loss is occurs due to inherent characteristic of goods, For example:- Normal leakage, evaporation etc.
• This loss effect the gross profit
• No accounting entry is made for such loss. this is automatically absorbed in gross profit
• This loss can not be insured
• This loss is almost certain. This occurs during transit or storage due to inherent characteristic of goods

Abnormal Loss  

• Abnormal loss occurs due to accident natural calamities or negligence.
• This loss does not effect the gross profit
• Accounting entry is made for such loss
• This loss can be insured against various contigencies
• This loss is not certain. This depends on the happining of certain event

Important Points to be Remember Related to Consignment account

• The consignee does not buy the goods which is sent by the consignor but merely undertake the goods to sell them on the behalf of the consignor
• The consignee gets the commissions for sales proceeds by him on behalf of consignor
• If the discount on bill receivable is treated as "Consignment expenses" The it is debited to consignment account
• If discount on bill receivable is treated as "Financial Charges", then it is debited to profit and loss account. 
• If goods are consigned to more than one party (or, no. of parties) , the profit or loss on consignment to each consignee may be ascertained separately.
• Treatment of normal loss in consignment account:- No Treatment is made in consignment account of normal loss because cost of normal loss is absorbed by good units.
•  Treatment of Abnormal loss in consignment account :- Value of abnormal loss is credited to consignment account because cost of abnormal loss is not absorbed by good units. 

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