Introduction to Consignment Accounting

Overview

This lecture explains the basics of consignment accounting, related journal entries, and their entries in various situations.

Beginning of Consignment Accounting

• Sending goods on consignment is necessary; a separate consignment account is created for each location.
• The consignment account always debits the cost of goods sent.
• If goods are sent at cost: Consignment Account Debit to Goods Sent on Consignment (at cost).
• If goods are sent at invoice price, adjustment is necessary for the additional amount.

Expense Entries

• Expenses by the consignor: Consignment Account Debit to Cash/Bank.
• Expenses by the consignee: Consigner Account Debit to Cash/Bank (expecting reimbursement).
• Expenses related to consignment are recorded only in the consignment account of the same location.

Goods Return

• On goods return, the first entry is reversed.
• Adjustment is necessary if sent at invoice price.

Sales Entries

• The consignee sells the goods; the sale is made in the name of the consignor.
• Cash/Bank/Debtors Account Debit to Consigner Account (sale amount).
• Commission received by consignee: Consignment Account Debit to Consignee’s Commission Account.

Remittance & Advance

• On receipt of remittance: Cash/Bank/Bills Receivable Account Debit to Consignee Account.

Loss Entries

• No entry is made for normal loss.
• Abnormal loss: Abnormal Loss Account Debit to Consignment Account.
• On receiving insurance claim: Insurance Company Account Debit to Abnormal Loss Account.

Profit & Loss Transfer

• Profit from consignment: Consignment Account Debit to Profit & Loss Account.
• Loss from consignment: Profit & Loss Account Debit to Consignment Account.

Key Terms & Definitions

• Consignment — The process of sending goods where ownership remains with the consignor, and sale is done by the consignee.
• Consigner — The sender of goods (owner).
• Consignee — The agent/representative who sells the goods.
• Invoice Price — The price at which goods are shown as sent.
• Abnormal Loss — Loss different from normal, unexpected (e.g., theft, fire).
• Normal Loss — Natural loss during the process (e.g., breakage).

Action Items / Next Steps

• Practice writing journal entries for different consignments.
• See examples of normal and abnormal loss in the next lecture.