Consignment
1. Important Terms Used In
Accounting For Consignment Of Goods
·
Consignment
The
dispatch or transfer of goods to an agent for the purpose of sale on behalf and
risk of principal is known as consignment
·
Consignor
The owner
or principal who sends the goods to agent is known as consignor.
·
Consignee
The agent
to whom the goods are sent is known as consignee.
·
Consignment Outward And
Consignment Inward
The goods
sent by consignor to the consignee is consignment outward. The same goods will
be consignment inward for the consignee.
·
Pro-forma Invoice
It is an
invoice prepared by the consignor and sent to the consignee detailing the
weight or quantity and the price at which the goods are to be sold. It is an
evidence of consigned goods indicating the price at or above the consignee will
have to sell the goods. Though it seems as a sales invoice in format, it is
quite different from it. A sales invoice is a document sent by a seller to
buyer which charges the buyer with the value of goods.
·
Account Sales
The
consignee has to inform its consignor about sale and expenses incurred by him
for selling activity. For this purpose, the consignee has to prepare a
statement which is known as account sale. An account sale is a statement of
sales and other expenses incurred by the consignee while performing sale. It
can be taken as a base of consignor's books of account for recording sales and
expenses incurred by the consignee for selling the consigned goods.
The various expenses are required
for goods sent by consignor to consignee. Similarly, the expenses are also
required for storing and selling activity performed by the consignee. These
expenses are of two types:
1.
Non-recurring Expenses:
The expenses incurred between the period of goods sent by consignor to receive
by the consignee is known as non-recurring expenses. In other words, all
expenses incurred till the goods reach to the consignee are non-recurring
expenses. Examples of non-recurring expenses are as follows:
Expenses
of the consignor
·
Packing
·
Carriage
·
Docks
dues
·
Landing
Charge
·
Freight
·
Insurance
Expenses
of the consignee
·
Unloading
charge
·
Dock
dues
·
Import
duty
Non-recurring expenses must be
included in the cost of the consignment. For arriving at the consignment, these
expenses are added. These expenses are also taken into consideration while
calculating the value of unsold stock or closing stock with the consignee.
2.
Recurring Expenses
The expenses paid by the
consignee after receiving the consigned goods are known as recurring expenses.
These expenses are of recurring nature and do not increase the value of goods.
Though the recurring expenses are met by consignor or consignee, these expenses
should be borne by the consignor. Some examples of recurring expenses are as
follows:
Expenses
of the consignor
·
Bank
charges
·
Expenses
incurred on damaged
·
Goods
received back
Expenses
of the consignee
·
Storage
charge
·
Insurance
·
Brokerage
·
Advertising
·
Salary
to salesmen
·
Expenses
on goods return
·
Goods
damaged
·
Commission
on sales
1.
What
is consignment?
Consignment meaning:
-
A batch of goods meant for or delivered to someone.
-
The action of consigning or
delivering something.
Shipment
of goods by a manufacturer or wholesale dealer to an agent to be sold by him on
commission basis, on the risk and account of the consignor (person who sends
the goods) is known as consignment.
2. Mention
the parties in consignment.
a.
Consignor : owner of the goods
b.
Consignee: person who receives goods
from consignor or owner. He sells goods on behalf and risk of consignor and he
gets some commission for doing this job
3. What are
the features of consignment?
Features of consignment are:
a.
The relation between the two parties
is that of consignor and consignee and not that of buyer and seller
b.
The consignor is entitled to receive
all the expenses in connection with consignment.
c.
The consignee is not responsible for
damage of goods during transport or any other procedure.
d.
Goods are sold at the risk of
consignor. The profit or loss belongs to consignor only.
4. State the
difference between consignment and sale.
Consignment
can not be treated as sales of goods. It is different from sales. The
difference between consignment and sales are as follows:
6. Write a
note on following terms
a.
Commission or ordinary commission
b.
Del credere commission.
c.
Over- riding commission or special
commission
-
Commission or ordinary commission.
For serving as an agent of the consignor, the
consignor, the consignee is entitled to some remuneration. The remuneration
payable to the consignee for his service is called “commission “or “ordinary
commission”
The
commission is, generally, fixed at a certain percentage on the gross sale
proceeds (I.e. on the total of cash and
credit sales).
The commission charged by the
consignee on the gross sale proceeds is known as ordinary or simple commission.
It is calculated at fixed percentage of total sales.
Commission = Gross sales X Fixed
rate percent of commission
-
Del credere commission: consignee sells goods either for
cash or on credit or on both. When the consignee sells the goods on credit,
ordinarily, he does not guarantee that the debtors will make the payment.
Therefore, if some of the debtors fail to pay their dues, the consignee is not
responsible for the bad debts. The bad debts have to be borne by the consignor.
However,
when consignee undertake to bear the risk
of bad debts, some extra commission
is payable by the consignor to consignee for the consignees special services.
The extra commission payable by the consignor to the
consignee for the consignee special services (i.e., his undertaking the risk of
bad debts arising out of credit sales ) is called del credere commission.
·
Once
extra commission paid to consignee, he is responsible for all the bad debts.
·
He
is not responsible for loss due to disputes regarding the quality of goods.
·
Commission
is calculated based on total sales or credit sales.
·
Absence
of any agreement commission calculated based on total sales. (i.e., total of
cash and credit sales).
-
Over- riding commission or
special commission
·
The
additional commission paid over and above the ordinary commission is called
over – riding commission or special commission.
·
The
objective of this commission is to give an incentive to the consignee to sell
the goods at a price higher than the invoice price and also to promote the sale
of new product in the market.
7.
What
is proforma invoice ?
When
a consignor consigns goods to a consignee, the consignee does not
buy those goods. He merely receives the possession of those goods for sale on
behalf of the consignor. So, the consignor does not prepare and send to the
consignee a regular invoice or invoice, which is sent when goods are sold.
But consignor prepares and sends to the consignee a statement which is
similar to the invoice. Such a statement is called proforma invoice.
·
Its serve as an evidence of consignment and to communicate
to the consignee the details of the goods sent.
·
It contains the description, quality, quantity
and price of the goods consigned.
·
It also gives consignee an idea about the price
at which the goods are to be sold.
·
The consignee is not expected to sell the goods
below th price stated in the proforma invoice without referring to the
consignor.
8.
What
do you mean by account sale ?
Either on completion of the sales or at
periodical intervals, the consignee sends to the consignor a detils of the goods sold by him in the form of a
statement. Such statement is called an account
sales.
It gives the details of :
- Gross sales effected by the consignee.
- Expenses incurred by the consignee.
- Commission due to the consignee.
- Advance paid by the consignee to the consignor.
- The final balace due from the consignee to the consignor.
- Remittance, if any sent by the consignee along with the account sale.
It
is on the basis of this statement that the consignor makes entries in his books
in respect of consignment transactions.
9.
Briefly
explain the difference between proforma
invoice and accounts sale.
10.
Explain
briefly ‘ Normal loss’ and ‘Abnormal losses’.
Sometimes , a
poriton of the goods sent on consignment may be lost or damaged either in
transit or after they reach the consignee. Such losses are of two types, viz…
1. Normal losses. 2. Abnormal losses.
Normal losses :
Normal
losses are those losses which arise from normally expected ro natural causes,
such as evaporation, leakeage,
shrinkage, breakage, loading and unloading, deying, breaking the bulk etc.
They
are inherrent in the goods consigned and so, are unavoidable, and form part of
the cost of consignment business.
·
There
is no separate entry in the consignment account for normal losses
·
They
are adjusted in the cost or value of the unsold stock.
