CONSIGNMENT ACCOUNT

Nature of Consignment

A trader sends goods to an agent to sell for him. These goods are sent on consignment. The ownership of goods still belongs to the trader, therefore all profits on consignment belongs to the trader. The agent earns commissions, he is NOT the owner, he is only the employee.

Consignment Terms

Consignor: The trader who sends goods to the agent to sell for him.Consignee: The agent who receives the goods.Account Sales: The statement prepared by the agent (consignee) to tell the trader

(consignor), how much goods he sold. (source document to trader)Commissions: Salary earned by the agent (consignee) if he can sell goods.

Commissions are calculated on gross proceeds of sales.Del Credere Commission: Additional commissions earned by the agent (consignee) if the agent if

the bears the responsibility of bad debts occurred. (Note: If there is bad debt, a del credere commission cannot be received by the consignee).

Proforma Invoice : A detailed invoice that informs the consignee on the description of the

goods and the minimum selling price for the goods. This invoice does not charge the consignee.

CONSIGNOR’S RECORDS

The primary object for preparing the consignment account is to find the profit/loss on each consignment separately. For that the consignor prepares four (4) basic records:

1. Goods Sent On Consignment Account2. Individual Consignment Outwards Account3. Individual Consignee Personal Accounts4. Profit & Loss on Consignment Account

1: Personal consignment accounts for each consignee/Goods sent on Consignment to distinguish one consignment from another. This account is credited with the original cost of the goods.

2: Consignment outwards is a combined trading and profit and loss account relating solely to consignment.

2a) Stock on hand – It is not necessary that all consignment should be completed during the current year. If all consignment is not sold a value should assigned to it. This calculation does NOT include selling expenses or commissions.

Original cost + consignors expenses + consignees expenses (except selling exp. & commissions) = Total value/Total cost.

Value of unsold stock = unsold quantity x total value total quantity

2b) Calculation of expenses – If all of the stock is not sold it is also necessary to allocate/spread out the cost of expense for the goods sold.

Expense for profit & loss = consignors expenses + consignees expenses (except selling exp. & commissions) = Total expense

Expense for profit & loss = amount sold x total expense amount consigned

3) Individual account of Consignees – These are opened for each agent and are debited with sales made, and credited with the consignee’s expenses and commissions.

4) Profit and Loss on Consignment – This account is also a comprehensive account and contains profits made on all consignments carried out during the trading period. The total of this is transferred to the profit and loss account at the end of the year.

CONSIGNEE’S RECORDS

The consignee’s records are less involved and because he does not have to keep record of stock except by way of memorandum. The consignee records include:

1. Account Sales (source document for consignor)2. Consignment Inwards Account3. Debtors Account4. Bad Debts Account5. Commissions Received Account

1. Account Sales – to show the consignor amount of sales, all expenses paid for on consignment, and commission deducted. This will show how much money the consignee is remitting/sending to the consignor.

2. Consignment Inwards Account – to record the amount of consignment received.

3. Debtors Account – to record the consigned goods that was sold on credit.

4. Bad Debts Account – to record the amount of consigned good that is uncollectable.

5. Commissioned Received Account – to record all commissions received from consignment.

Consignment Account Worksheet

Multiple ChoiceIdentify the letter of the choice that best completes the statement or answers the question. (1 mark each)

1. Kelly Jones, San Salvador, consigned goods originally costing $6 000 to Shelly Holmes in Nassau. Shelly paid and additional $250 for trucking, $180 insurance and $120 landing charges. There were 160 items in total. (BGCSE 2002)

What is the total value of the goods consigned?

A. $6 000

B. $6 370

C. $6 430

D. $6 550

1b. If 40 items remain unsold, what would be the value of Kelly’s stock on hand? (BGCSE 2002)

A. $1 500.50

B. $1 592.50

C. $1 607.50

D. $1 637.50

2. A Consignee does not have to keep a stock record for goods consigned, except for memorandum purposes. Why is it not necessary for him to keep a record of stock? (BGCSE 2003)

A. The Consignee has sufficient details in the Account Sales

B. The Consignee is only an agent and does not own the goods

C. The Consignee must sell all goods in his possession

D. The Consignee owes the Consignor for unsold stock

3. When preparing Consignment accounts, the agent usually receives remuneration (payment) for services in the form of a flat rate based on a percentage of the gross sales figure. What is this flat rate called? (BGCSE 2003)

A. Commission

B. Consignment commission

C. Del credere commission

D. Proforma commission

4. Which of the following statements correctly defines DEL CREDERE COMMISSION? (BGCSE 2004)

A. Additional payment to the consignee over and above regular commission

B. Document sent by the consignee to the consignor giving details of the sales

commission

C. remuneration for services performed by the consignee as a commission

D. When goods are sent to an agent as commission

5. Which of the following is correct: (BGCSE 2005)

A. The Consignor is the person who owns the goods and sends them to the agent

B. The Consignor is the person who receives and sells the goods

C. The Consignor is the person who receives the a del credere commission

D. The Consignor is the agent who sells the goods

6. P. Taylor, a consignee, submitted an Account Sales to Terry’s Wholesalers, a consignor, showing that he had sales of 300 items at $25 each, Landing Charges $680, Duties and Taxes $1 200 and a 5% commission. How much should be indicated as the amount due to Terry’s Wholesalers? (BGCSE 2005)

A. $5 245

B. $5 620

C. $7 125

D. $7 500

7. P. Lowe ships goods $1 200, from New Providence on consignment to B. Dean in Long Island. Which entry should be made in the books of P. Lowe? (BGCSE May 2006)

DEBIT CREDITA. Goods Consigned Outwards Consignment to B. Dean, Long Island

B. Consignment to B. Dean, Long Island Goods Consigned Outwards

C. Goods Consigned Inwards Consignment to B. Dean, Long Island

D. Consignment to B. Dean, Long Island Goods Consigned Inwards

Question 8 to 11 refer to the following (BGCSE May 1997)

Peter Rollins of Bimini consigned 125 cases of fish to Charles Wells in Long Island on 1st February 1997. Charles Wells is entitled to a commission of 5% on sales and an additional del credere commission of 2% on sales. The goods cost Peter Rollins $25 a case and he paid $80 in freight charges and insurance premiums of $30.

8

9

10

11

BGCSE 2002)

BGCSE May 2002

BGCSE June 2007

BGCSE June 2009

C. Prepare the accounts necessary to record these details in the books of the consignor. [16]