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Financial Accounting Notes

CONSIGNMENT ACCOUNT

MEANING

Consignment of goods: This is concerned with the sending of goods by the consignor to the consignee who agrees to sell them on behalf of the owner. Recording of such transactions is called consignment accounts.

CHARACTERISTICS OF CONSIGNMENT ACCOUNT

The main features of consignment account are as follow:

  • Goods that are being sold on consignment are described as goods on consignment
  • The arrangement involves appointment of an agent whose responsibility is to sell the principal goods consigned to him.
  • The parties involved in this arrangement are the agent (consignee) and the principal (consignor)
  • The appointed agent has to take the responsibility of the goods until they are sold.
  • The agent (consignee) will receive a commission from the principal (consignor) for his work.
  • If the agent could indemnify the consignor from any indebtedness arising from the sales made by the consignee, he will be paid a special commission called Del-credere commission
  • All the parties involved are expected to keep independent accounting records retailing to the consignment of goods
  • Any goods held by the consignee is described and treated as stock of goods belonging to the consignor.

CONSIGNMENT ACCOUNT TERMINOLOGIES

1. Pro – forma Invoice: It means “for form’s sake” invoice. This is a document of detailed information issued by the consignor to the consignee relating to the consignment.

2. Commission: This is a form of reward or remuneration for doing a job on behalf of a principal. It is based on a flat rate percentage of the gross sake made

3. Del – credere commission: This is a special commission given to the consignee for accepting the responsibility for any bad debts arising from sales made on credit.

4. Consignor: That is the trader or seller or principal who sends goods to the agent for sale.

5. Consignee: This is the agent who acts on behalf of the principal or consignor to sell goods consigned to him for a reward.

6. Consignment: it simply means bulk of goods or items transferred from one place to another

7. Consignment Inwards: These are bulk of goods sent to an agent (consignee) for sale within the same place with the principal (consignor)

8. Consignment Outwards: These are bulk of goods sent to an agent (consignee) in another country different from principal (consignor) counting of resident

OPERATION SYSTEM OF CONSIGNMENT ACCOUNT

Bad debts and consignment

When an agent sells the goods of the consignor, he will collect the sale money from the customer. If the customer defaults, the consignee need not pay the money in this regard to the consignor. In order to protect himself against such bad debts, the consignor pay the consignee a special commission called Del – credere commission to make sure the consignor indemnifies him against bad debts.

ASSIGNMENT

Page 334 question 4

WEEK 10

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