Goods Invoiced at Cost Price
22/07/2020The consignor wants to know two things which are:
(1) To ascertain profit or loss when goods on consignment sold by the consignee.
(2) To know the settlement of account by the consignee i. e. to know the amount due by or due to consignee.
The consignment account is opened by the consignor to know profit or loss on each consignment. Each consignment is distinguished from the other by naming it in respect to place, examples, Consignment to Madras, Consignment to Bombay etc.
If there are a number of consignments in one place, then the name of the consignee is added to the consignment account, for example: Consignment to Ramu Account, Consignment to Krishna Account etc. For that, he opens a Consignment Account for each consignment.
It is revenue (Nominal) Account. It is a special Trading and Profit and Loss Account. Consignee Account is prepared to know the amount due by or due to the Consignee. It is a personal account.
Journal Entries:
Following are the set of journal entries in the books of Consignor:
(1) When the Goods are Sent on Consignment:
Consignment Account Dr
To Goods Sent on Consignment A/c
(Being the cost of goods sent on Consignment)
(2) When Expenses are Incurred by the Consignor:
Consignment Account Dr.
To Bank/Cash Account
(Being the expenses incurred on Consignment)
(3) When Advance is Received from Consignee:
Cash/Bank/Bill Receivable Account Dr.
To Consignee Account
(Being the amount of advance received from Consignee)
(4) When the Bill is Discounted by the Consignor with his Banker:
Bank Account Dr.
Discount Account Dr.
To Bills Receivable A/c
(Being the Bill is discounted)
Note: The Discount on Bills can be transferred to Profit and Loss Account or to the Consignment Account. Since it is a cost of raising finance, it can be transferred to Profit and Loss Account.
After the Consignee sends the Account Sales:
(5) When the Gross Sales Proceeds are Reported by the Consignee:
Consignee Account Dr.
To Consignment Account
(Being the gross sales proceeds reported by the Consignee)
(6) For Expenses Incurred by the Consignee:
Consignment Account Dr.
To Consignee Account
(Being the expenses incurred by the Consignee)
(7) For Commission Payable to the Consignee:
Consignment Account Dr.
To Consignee Account
(Being the Commission due to Consignee)
(8) For Unsold Stock Remaining with the Consignee:
Consignment Stock Account Dr.
To Consignee Account
(Being the value of unsold stock)
(9) For Transferring the Profit or Loss to Profit and Loss:
For Profit:
Consignment Account Dr.
To Profit and Loss Account
(Being the profit transferred to Profit & Loss Account)
For Loss:
Profit and Loss Account Dr.
To Consignment Account
(Being the loss on consignment transferred to Profit & Loss A/c)
(10) For Settlement of Account by the Consignee:
Generally the balance amount is settled by the Consignee when he sends the Account Sales:
Bank/Cash/Bill Receivable Account Dr.
To Consignee Account
(Being the amount due from Consignee is received)
(11) When Goods Sent on Consignment Account is Closed:
Goods sent on Consignment Account Dr.
To Trading/Purchase Account
(Being the amount of goods sent on Consignment)
Note: If it is a manufacturing concern, then the Goods sent on Consignment account is closed by transferring it to Trading Account. If it is a trading concern, then it is closed by transferring it to Purchase Account.
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