What is consignment? Give its characteristics. How is it different from joint venture and sale ? ( December 2023 )

1. Meaning of Consignment

Consignment is a business arrangement in which goods are sent by one person (Consignor) to another person (Consignee) to sell the goods on the consignor’s behalf.
The ownership of the goods remains with the consignor until they are sold. difference between consignment and joint venture

The consignee only acts as an agent, sells the goods, collects money, deducts his expenses/commission, and sends the balance to the consignor.

2. Characteristics of Consignment

1. Ownership remains with consignor
   Goods sent do not become the property of the consignee until sold.
   
2. Consignee is only an agent
   He sells goods on behalf of consignors and earns commission. difference between consignment and joint venture
   
3. Risk remains with consignor
   Loss or damage of goods is borne by consignor unless caused by consignee’s negligence. difference between consignment and joint venture
   
4. Goods sold at consignor’s risk and price
   The consignee cannot change the price without consent. difference between consignment and joint venture
   
5. Separate accounts are maintained
   Consignor prepares a Consignment Account to find profit or loss on consignment.
   
6. Consignee sends Account Sales
   A periodical statement of sales, expenses, commission and balance due. difference between consignment and joint venture
7. Unsold goods can be returned
   The consignee can return unsold goods to the consignor.
   

3. Difference Between Consignment and Joint Venture and Sale

A. Consignment vs Sale

1. Ownership Transfer
   

Consignment: Ownership does not transfer to consignee.

• • Sale: Ownership transfers to the buyer immediately.

1. Relationship
   
   • Consignment: Principal–Agent relationship.
   • Sale: Seller–Buyer relationship.
2. Risk of Goods
   
   • Consignment: Risk with consignor.
   • Sale: Risk shifts to buyer once sale is complete.
3. Unsold Goods
   
   • Consignment: Can be returned to consignor.
   • Sale: Cannot be returned unless agreement exists (return policy).
4. Profit
   
   • Consignment: Profit belongs only to consignor; consignee gets commission.
   • Sale: Seller earns profit included in selling price. difference between consignment and joint venture

B. Consignment vs Joint Venture

1. Nature of Relationship
   
   • Consignment: Principal-Agent relationship.
   • Joint Venture: Co-venturer / partnership-like relationship.
2. Ownership of Goods
   
   • Consignment: Goods belong to the consignor.
   • Joint Venture: Goods belong to all co-venturers jointly.
3. Sharing of Profit
   
   • Consignment: Only consignor gets profit; consignee gets commission. difference between consignment and joint venture
   • Joint Venture: Profit and loss are shared among co-venturers as per agreement.
4. Objective
   
   • Consignment: To sell goods on behalf of a consignor.
   • Joint Venture: To undertake a specific business project jointly (e.g., construction, import). difference between consignment and joint venture
5. Accounts
   
   • Consignment: Consignment A/c + consignee’s A/c.
   • Joint Venture: Joint Venture A/c + co-venturers’ personal accounts. difference between consignment and joint venture
6. Risk
   
   • Consignment: Risk borne by consignor.
   • Joint Venture: Risk borne by all venturers jointly.

Conclusion

Consignment is an arrangement where goods are sent to an agent for sale without transferring ownership. Its features include retention of ownership, principal–agent relationship, and risk with consignor. It differs from a sale where ownership transfers to the buyer, and from joint ventures where parties jointly own goods and share profits and losses.

If you want to know the Syllabus of Financial Accounting, visit the official website Gndu.

👉 Note:- Important questions of Financial Accounting.

1. What is capital expenditure, revenue expenditure and deferred revenue expenditure? Give characteristics of each. When are revenue expenses treated as capital expenses. ( December- 2023 )
2. What are Consignment Accounts? Explain accounting treatment of consignment transactions in the books of consignor and consignee. ( December 2024 )
3. What is a Voyage Account? Explain the procedure of preparing voyage accounts. ( December- 2023 )
4. What are departmental accounts? What are its objectives? Discuss the methods of departmental accounts. ( December 2023 )