2/22/2021 ACCOUNTING TREATMENT OF CONSIGNMENT - COMMERCEIETS
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ACCOUNTING TREATMENT OF CONSIGNMENT
FINANCIAL ACCOUNTING
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ACCOUNTING TREATMENT OF CONSIGNMENT
Consignment is a specialized kind of transaction which involves the two parties i.e. Consignor
and Consignee. In this the consignor dispatches the goods to the consignee and consignee is
required to sell those goods. For this, the consignee gets a commission. Consignment is a nature
of transaction that leads to the expansion of business. The legal relationship between the
consignor and consignee is of the agent and the principal. The Accounting Treatment of
Consignment is as follows:
IN THE BOOKS OF CONSIGNOR
In order to keep the full record of the various transactions regarding the consignment, the
consignor opens the following accounts in his books:
CONSIGNMENT ACCOUNT
This is a Nominal Account.
This is prepared to nd out the pro t or loss of the concern.
It is named with the consignee or the place.
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2/22/2021 ACCOUNTING TREATMENT OF CONSIGNMENT - COMMERCEIETS
All the expenses on the consignment are debited to this account.
CONSIGNEE’S ACCOUNT
This is the personal account.
The gross sale proceeds are debited in this account.
The advance given by consignee is credited in this account.
An expense incurred by the consignee, commission due to him is credited in this account.
Balance of this account shows the amount due from the consignor.
GOODS SENT ON CONSIGNMENT ACCOUNT
It is a real account.
The goods sent on consignment are credited in this account.
The goods returned by the consignee are debited in this account.
This account is closed by transferring the balance amount to either Trading Account or Purchases Account.
STOCK ON CONSIGNMENT ACCOUNT
This is the real account.
It records the unsold goods with the consignee at the end of the year.
CONSIGNMENT STOCK RESERVE ACCOUNT
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In those cases where the goods, are consigned to consignee at invoice price or ‘cost plus pro t
basis’ and at the end of the year, a portion of goods remain unsold. This account is opened to
adjust the effect of excess of invoice price over the cost price, in order to arrive at true pro t.
JOURNAL ENTRIES
There are three methods of accounting for consignment:
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COST PRICE METHOD
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2/22/2021 ACCOUNTING TREATMENT OF CONSIGNMENT - COMMERCEIETS
Goods sent by consignor on Consignment:
Consignment A/c Dr.
To Goods sent on Consignment A/c
Expenses incurred by Consignor:
Consignment A/c Dr.
To Cash Account.
Goods sold by Consignee:
Consignee A/c Dr.
To Consignment Account
Expenses incurred by the Consignee:
Consignment A/c Dr.
To Consignee A/c
Pro t on Consignment:
Consignment A/c Dr.
To Pro t and Loss Account
Loss on Consignment:
Pro t and Loss A/c Dr.
To Consignment A/c
FORMAT OF CONSIGNMENT ACCOUNT
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2/22/2021 ACCOUNTING TREATMENT OF CONSIGNMENT - COMMERCEIETS
DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT
To Goods sent on
consignment A/c (at
cost) By Consignee’s A/c (For
To Cash A/c (Expenses sales made on
of consignor) consignment)
To Consignee’s A/c By consignment on stock
(Expenses of A/c (with cost or market
consignee) price- least)
To Consignee’s A/c By Pro t and Loss A/c
(Commission of (for loss on
consignee) consignment)
To Pro t and Loss A/c
(Pro t on consignment)
INVOICE PRICE METHOD
In many cases, the consignor makes the invoice at the selling price i.e. Proforma Invoice Price.
The idea is that the consignee should not know the actual cost of the goods. In such case, the
entries are made by the consignor in his books at the invoice price. But to nd out the actual
pro t or loss, the sale proceeds must be compared with the actual pro t.
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2/22/2021 ACCOUNTING TREATMENT OF CONSIGNMENT - COMMERCEIETS
When goods are invoiced at loading
When goods are invoiced at cost
price
Consignment A/c Dr.
To Goods sent on consignment A/c
Consignment A/c Dr. (with invoice price of goods)
FOR GOODS SENT ON
To goods sent on consignment A/c Goods sent on consignment A/c Dr.
CONSIGNMENT
(with cost of goods)
To Consignment A/c (with the amount
of loading)
Goods sent on consignment A/c Dr.
To Consignment A/c (with cost of
FOR GOODS Goods sent on consignment A/c Dr.
goods)
RETURNED BY To Consignment A/c (with cost of
Consignment A/c Dr.
CONSIGNEE goods)
To goods sent on consignment A/c
(with amount of loading)
Consignment A/c Dr.
To Consignment Stock A/c (with
Consignment A/c Dr.
invoice price of opening stock)
FOR OPENING STOCK To Consignment Stock A/c (with
Consignment Stock A/c Dr.
cost price of opening stock)
To Consignment A/c (with amount
of loading)
Consignment A/c Dr.
To Consignment Stock A/c (with
Consignment Stock A/c Dr.
invoice price of opening stock)
FOR CLOSING STOCK To Consignment A/c (with cost
Consignment Stock A/c Dr.
price of closing stock)
To Consignment A/c (with amount of
loading)
MEMORANDUM COLUMN METHOD
This method is a mixture of both cost price and invoice price method. Two columns are made to
record the cost price and the invoice price of the goods consigned. There is no need for passing
the entries for removal of both loading as both invoice and cost values are shown in the separate
columns. The cost column shows the pro t or loss.
IN THE BOOKS OF CONSIGNEE
The consignee makes the accounts relating to consignment to effect the settlement with the
consignor and to recognize his commission entitlement as consignee. To achieve these
objectives, he prepares the following two accounts:
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2/22/2021 ACCOUNTING TREATMENT OF CONSIGNMENT - COMMERCEIETS
CONSIGNOR’ PERSONAL ACCOUNT
This is personal account.
A separate consignor account is prepared in respect of every consignment.
It is debited with the expenses incurred, commission earned by consignee, advance given to the consignor.
It is credited with the value of goods sold.
The balance of this account will show the amount due to or due from the consignor.
COMMISSION ACCOUNT
This account is nominal in nature.
It is credited with the commission earned by the consignee.
It is transferred to Pro t and Loss Account.
JOURNAL ENTRIES
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2/22/2021 ACCOUNTING TREATMENT OF CONSIGNMENT - COMMERCEIETS
Advance sent by consignee to Consignor:
Consignor A/c Dr.
To Cash/ Bank
Goods sold by Consignee:
Cash A/c Dr. (on cash basis)
Debtor A/c Dr. (on credit basis)
To Consignor A/c
Expenses incurred by consignee:
Consignor A/c Dr.
To Cash Account
Commission due to consignee:
Consignor A/c Dr.
To Commission A/c
Amount sent by consignee against sale proceeds:
Consignor A/c Dr.
To Cash A/c
By : commerceiets
Tags: CONSIGNMENT
DIFFERENCE BETWEEN CONSIGNMENT AND SALE TREATMENT OF LOSS ON CONSIGNMENT
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