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Chapter 3: Consignment
ƒ Consignment: Consignment means the transaction of sending goods by one person to another, who is
to sell those goods, on behalf of the first person.
ƒ Consignor: The person who sends the goods is known as Consignor.
ƒ Consignee: The person to whom the goods are sent is known as Consignee.
ƒ Relationship: The legal relationship between these two persons is that of principal and agent.
ƒ Outward/ Inward Consignment: The consignment is Outward Consignment for the person who sends
the goods for sale and Inward Consignment for the person who receives the goods for sale

Basis Consignment Sale

Ownership in Ownership of the goods remains with Both ownership and possession are
goods. consignor until the goods are actually transferred to the buyer immediately after
sold. Consignee acts only as a custodian sale.
of goods.
Relationship The relationship of consignor and In case of credit sales, the relationship of
consignee is that of principal and agent. seller and buyer is that of creditor and
debtor.
Statue Law of agency applies. Sale of Goods Act applies.
Commission Consignee is entitled to get commission Seller earns profit at the time of sale. No
based on agreement entered with commission is given to the buyer.
consignor.

Accounts Sales Proforma Invoice

It is prepared and forwarded by consignee to It is prepared and forwarded by consignor to
consignor. consignee.
It is sent only once, when goods are sent on
It is sent at periodic intervals.
consignment.
It contains information about goods sold. It contains information about goods consigned.

Account Sales Consignment Account

It is just a statement. It is a nominal A/c.
It is prepared by consignee. It is prepared by consignor.
It reflects the balance due to Consignor. It reflects the profit or loss on consignment.

Proforma Invoice Sales Invoice

It cannot charge the consignee for value of the
It charges the buyer with the value of the goods.
goods.
It may be prepared at Cost Price or at Invoice
It is always prepared at selling price.
Price.

Recurring expenses Non-recurring expenses

These expenses are not incurred again and again,
These expenses are incurred again and again.
but once.
These expenses are incurred by the consignee after These expenses are incurred in transferring goods
the goods reach his godown. from consignor’s godown to consignee’s godown.
These expenses are not considered in Valuation of These expenses are considered in Valuation of
Unsold Stock. Unsold Stock.

Stock on Consignment Account Consignment Stock Reserve Account

It is basically the closing stock in consignment It is amount of loading on Consignment Stock at
business. the end.
It is always shown as debit balance. It is always shown as credit balance.

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Normal Loss
An unavoidable loss, due to inherent features of
the goods. For e.g. evaporation, etc.
It is treated as a part of cost by inflating the cost
per unit.
No Journal entry is passed for such loss.
Abnormal Loss
An avoidable loss, which occurs due to abnormal
factors, like fire, theft, etc.
Its value is credited to consignment account, in
order to calculate the normal profit/loss.
The following entry is passed: (Refer Entry 12)

Basis of Ordinary Special Commission

Distinction Commission Del Credere Commission Overriding Commission
It is allowed to all the It is allowed to the consignee It is allowed to the consignee
1. When consignees for all the only when he undertakes the to effect sales at a price higher
allowed? consignments for selling risk of bad debts arising out of than price fixed by the
goods. credit sales. consignor.
In return of this In return of this commission,
In return of this commission,
commission, consignee consignee guarantees the
2. Guarantee consignee does not give any
guarantees only the proceeds of cash sales and
guarantee.
proceeds of cash sales. credit sales.
It is calculated at an agreed rate It is calculated on the
It is calculated at an
3. How to either on the total sales (if no difference between actual total
agreed rate on the total
calculate? agreement) or credit sales (if sales and sales at specified
sales.
agreement provides). selling price (surplus).

Statement showing Valuation of Unsold Stock

Particulars Units Cost Loading
Goods Sent on Consignment ** ** **
Add: All expenses incurred by Consignor ---- ** ----
** ** **
Less: Goods lost in transit ** ** **
Less: Goods still in transit ** ** **
** ** **
Add: Consignee’s Non-recurring expenses ---- ** ----
** ** **
Less: Abnormal Loss ** ** **
** ** **
Less: Normal Loss ** ---- ----
Cost of Goods Available for sale ** ** **
Value of Unsold Stock ** ** **

Basis of Valuation of Unsold Stock: Unsold Stock is to be valued at cost price or net realizable value,
whichever is lower. Cost means purchase price plus relevant expenses. Net Realizable value means market
price of the goods. (Note: Commission to be deducted in calculation of Net realizable value.)

Accounting Entries:
In the books of Consignor In the books of Consignee
1. When goods are sent on consignment:
Consignment to ______ A/c Dr.
No Entry
To Goods Sent on Consignment A/c
2. Consignor’s Expenses:
Consignment to ______ A/c Dr.
No Entry
To Bank A/c
3. For receiving advance from consignee:
Cash/Bank/Bills Receivable A/c Dr. Consignor A/c Dr
To Consignee A/c To Cash/Bank/Bills Payable A/c
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4. On getting the bills receivable discounted

Bank A/c Dr.
Discount A/c Dr No Entry
To Bills Receivable A/c
5. On receiving the goods returned by consignee
Goods Sent on Consignment A/c Dr.
No Entry
To Consignment to ______ A/c
6. Consignee’s Expenses:
Consignment to ______ A/c Dr. Consignor A/c Dr.
To Consignee A/c To Bank A/c
7. (a) On Sales being made by consignee:
Consignee A/c Dr. Cash/Consignment Debtors A/c Dr.
To Consignment to ______ A/c To Consignor A/c
8. On Making Commission due to consignee:
Consignment to ______ A/c Dr. Consignor A/c Dr.
To Consignee A/c To Commission A/c
9. (a) For Bad debts if DCC is not given to consignee:
Consignment to ______ A/c Dr. Consignor A/c Dr.
To Consignee A/c To Consignment Debtors A/c
9. (b) For Bad debts if DCC is given to consignee:
Bad Debts A/c Dr.
No Entry
To Consignment Debtors A/c
10. On receiving remittance from the consignee:
Cash/Bank/Bills Receivable A/c Dr. Consignor A/c Dr
To Consignee A/c To Cash/Bank/Bills Payable A/c
11. For unsold stock with consignee:
Consignment Stock A/c Dr.
No Entry
To Consignment to ______ A/c
12. For Abnormal Loss of Goods:
Abnormal Loss A/c Dr.
To Consignment to ______ A/c
Profit & Loss A/c Dr. No Entry
Insurance Co./Bank A/c Dr.
To Abnormal Loss A/c
13. For Closing Consignment A/c by recording Profit or Loss:
(a) In case of Profit:
Consignment to ______ A/c Dr.
To Profit on Consignment A/c
No Entry
(b) In case of Loss:
Loss on Consignment A/c Dr.
To Consignment to ______ A/c
14. For closing Goods Sent on Consignment A/c by transferring the balance to Trading A/c:
Goods Sent on Consignment A/c Dr.
No Entry
To Trading A/c

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Invoice Price & Loading
¾Sometimes, the consignor does not want to reveal the cost of goods to the consignee and
therefore invoices goods at a price which is higher than the cost price. Such price is known as
Invoice Price and the difference between Invoice Price & Cost Price is called Loading.
¾When Goods are sent cost plus loading, then some additional entries are required to be passed in
the books of consignor, to eliminate loading.
Situation Entry
1. To Eliminate loading from goods are sent on Goods Sent on Consignment A/c Dr.
consignment: (Refer Entry 1 of previous list) To Consignment to ______ A/c
2. To Eliminate loading from goods returned by Consignment to ______ A/c Dr.
consignee: (Refer Entry 5 of previous list) To Goods Sent on Consignment A/c
3. To Eliminate loading from unsold stock with Consignment to ______ A/c Dr
consignee: (Refer Entry 11 of previous list) To Consignment Stock reserve A/c

Write answer of these questions in your copy:

1. What is Proforma Invoice? Why is it drawn and by whom? [ISC 1993]
2. Why is consignee not treated as a Consignor’s debtor? [ISC 1994]
3. Differentiate between Normal Loss and Abnormal Loss. [ISC 1996]
4. What is abnormal loss in consignment Accounts? [ISC 1997]
5. What is Over-riding Commission and how it is accounted for? [ISC 2000, 07]
6. What is meant by Recurring and Non-recurring Expenses? Give four examples of each.
[ISC 1995, 02]
7. What is Del Credere commission? [ISC 1998, 03]
8. Give two differences between Account Sales and Proforma Invoice? [ISC 2004]
9. What entry will you pass for credit sales made by consignee, when:
(a) He gets Del Credere commission.
(b) He does not get Del Credere commission. [ISC 2004]
10. Give two differences between Sales Invoice and Proforma Invoice? [ISC 2005]
11. What is account Sales? State two ways in which it differs from a consignment account. [ISC 2005]
12. What is Normal Loss? How is it treated in Consignment Accounts? [ISC 2007]
13. How will Discounting Charges in a consignment account be dealt with when a bill of exchange is
drawn by the consignor on the consignee as an advance? [ISC 2008]

Student’s Notes

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