Classwork Series and Exercises {Financial Account – SS1}: Consignment Account

Financial Accounting, SS 1, Week 4

Topic: Consignment Account

Contents

• Meaning of Consignment Account
• Pro forma invoice
• Agent’s commission
• Entries in the book of the consignor

Meaning of Consignment Accounts

Consignment accounts are concerned with goods sent to an agent who will sell the goods on behalf of his principal. In many cases the goods are consigned to an agent abroad.

1. To distinguish the goods from the normal sales they are always described as “goods on consignment”
2. The principal is called the consignor, since he sends the goods to his agent, and the agent is the consignee,to whom the goods are sent consigned.
3. Goods are not sold to the agent, and he accepts no responsibility for payment unless and until they are sold by him.
4. Any stock of goods held by the agent is therefore counted as a stock of goods belonging to the consignor,and will be shown as such in his balance sheet.

Proforma Invoice

Since the goods are not sold to the agent, a proforma invoice is used when the goods are sent to him{pro forma means “for form sake”.

1. This document does not make a charge, but communicates information.
2. It will inform the agent of the price at which he is expected to sell the goods.

Agents Commission

The agent usually receives remuneration for his services in the form of a commission.

1. A flat rate based on a percentage on the gross sales figure
2. When the agent accepts responsibility for any bad debts resulting from sales made on credit it is usual to give him an additional commission del credere commission.

Entries in the book of the consignor

• open two accounts

1. Goods sent on consignment account
2. Consignment to  Do & Do{the consignee}

Note: The amount taken to this account is at cost price.

Example:

On February 12, 19…the iced cold Refrigerators Ltd.sent on consignment 50 refrigerator costing #40 each to A.W.Sholly of South Africa. the entries in the consignor’s book will be as follows

                                        Goods sent on consignment                                               

                                                            Feb. 12 Consignment to A. W. Sholly #2,000

                             Consignment to A.W. Sholly South Africa                                          

                                                             Feb.12 Goods sent on consignment     #2,000

The “Goods sent on consignment Account”will ultimately  be closed by transfer to the Trading Account where the amount involved will be deducted from the purchases figure.

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