Consignment account notes

What are Consignment Accounts? Explain accounting treatment of consignment transactions in the books of consignor and consignee.

Meaning of Consignment:

A consignment refers to an arrangement in which the owner of goods (called the consignor) sends goods to another person or agent (called the consignee) to sell those goods on behalf of the consignor.

The ownership of the goods remains with the consignor, even though the goods are in the possession of the consignee. The consignee only acts as an agent and sells the goods for a commission.

Key Points:

1. Consignor → The person who sends the goods.
2. Consignee → The person who receives the goods to sell on behalf of the consignor.
3. Ownership → Remains with the consignor until the goods are sold.
4. Commission → The consignee earns a commission for selling the goods.
5. Risk of Goods → Lies with the consignor until the sale is made.

Example:

Suppose Ravi (consignor) sends 100 shirts to Amit (consignee) to sell in Delhi. Amit sells the shirts and sends the sales proceeds (after deducting his commission and expenses) to Ravi.

This arrangement is called a consignment.

Consignment Accounts

Meaning:

A Consignment Account is a special account prepared to find out the profit or loss on goods sent by the consignor (owner) to another person called the consignee (agent), who sells those goods on behalf of the consignor.

• The Consignor = Owner of the goods
• The Consignee = Agent who sells goods for the consignor and earns a commission

Ownership of goods remains with the consignor until they are sold. The consignee only acts as a selling agent.

Example for Understanding

Suppose A & Co. (consignor) of Delhi sends 100 bags of rice to B & Co. (consignee) of Mumbai to sell on its behalf.

B & Co. sells them and gets a commission. The profit or loss on this transaction will be known through the Consignment Account prepared by A & Co.

Accounting Treatment

Let’s see how consignment transactions are recorded in the books of both parties:

(A) In the Books of the Consignor

1. When goods are sent on consignment

Consignment A/c Dr.

To Goods Sent on Consignment A/c

(Cost price of goods sent)

Note: If goods are sent above cost (i.e., invoice price), the excess (loading) is later adjusted.

2. When expenses are incurred by consignor

(e.g., freight, insurance, etc.)

Consignment A/c Dr.

To Cash/Bank A/c

3. When consignee incurs expenses

(on behalf of consignor)

Consignment A/c Dr.

To Consignee’s A/c

4. When consignee sells goods

No entry for the sale in consignor’s books at that time.

The consignee will later send an Account Sales showing the sale proceeds.

5. When consignee sends Account Sales and remits money

For amount due from consignee:

Consignee’s A/c Dr.

To Consignment A/c

For commission allowed to consignee:

Consignment A/c Dr.

To Consignee’s A/c

When consignee remits cash:

Bank A/c Dr.

To Consignee’s A/c

6. For unsold goods (Closing Stock on Consignment)

Consignment Stock A/c Dr.

To Consignment A/c

7. For profit or loss on consignment

After all entries, transfer balance of Consignment A/c:

If credit side > debit side → Profit

Consignment A/c To Profit & Loss A/c

If debit side > credit side → Loss

Profit & Loss A/c To Consignment A/c

(B) In the Books of the Consignee

1. When goods received

No entry — because the consignee is not the owner of goods.

2. When consignee incurs expenses

Consignor’s A/c Dr.

To Cash/Bank A/c

3. When consignee sells goods

Cash/Bank/Debtors A/c Dr.

To Consignor’s A/c

4. When commission is earned

Consignor’s A/c Dr.

To Commission A/c

5. When consignee remits balance to consignor

Consignor’s A/c Dr.

To Bank A/c

Summary Table

Conclusion of Consignment Account

The Consignment Account is prepared to determine the profit or loss on goods sent by the consignor to the consignee for sale.

It is a special trading account showing all expenses, losses, and incomes relating to the consignment. The balance of this account represents the profit (or loss) made on the consignment, which is transferred to the Profit and Loss Account of the consignor.

In short:

• It helps the consignor to find the result of each consignment separately.
• The consignee does not own the goods — he only acts as an agent.
• All expenses and losses are debited, and all incomes, sales, and closing stock are credited.
• Profit or loss on consignment is finally transferred to the consignor’s Profit & Loss Account.

Final Conclusion:

The consignment account shows the true financial result of goods sent on consignment and ensures proper accounting between consignor and consignee for the entire transaction.

Consignment account notes

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