by Consignment refers to an arrangement where the consignor (owner of goods) sends goods to the consignee (agent) for sale on behalf of the consignor. The consignee does not take ownership of the goods but sells them and earns a commission on the sales made.
1. Journal Entries in the Books of Consignor
The consignor records the consignment transaction using a Consignment Account to determine the profit or loss from the consignment. The following are the key entries:
| Transaction | Journal Entry |
|---|---|
| Goods sent on consignment | Consignment A/c Dr. To Goods Sent on Consignment A/c |
| Expenses incurred by consignor | Consignment A/c Dr.
To Cash/Bank A/c |
| Expenses incurred by consignee (notified) | Consignment A/c Dr.
To Consignee A/c |
| Sales made by consignee (notified) | Consignee A/c Dr.
To Consignment A/c |
| Commission due to consignee | Consignment A/c Dr.
To Consignee A/c |
| Payment received from consignee | Bank A/c Dr.
To Consignee A/c |
| Profit or Loss on consignment | Profit: Consignment A/c Dr.
To Profit and Loss A/c Loss: Profit and Loss A/c Dr. To Consignment A/c |
2. Journal Entries in the Books of Consignee
Since the consignee acts as an agent, they do not record the consignment as their purchase. They only record the expenses incurred, commission earned, and the remittance to the consignor. The following are the key entries:
| Transaction | Journal Entry |
|---|---|
| Expenses incurred by consignee | Consignor A/c Dr.
To Cash/Bank A/c |
| Sales made on behalf of consignor | Cash/Bank A/c Dr.
To Consignor A/c |
| Commission due to consignee | Consignor A/c Dr.
To Commission A/c |
| Remittance to consignor | Consignor A/c Dr.
To Bank A/c |
illustrative Example
Scenario:
- A consignor, XYZ Ltd., sends goods costing ₹1,00,000 to a consignee, ABC Traders.
- Expenses incurred by XYZ Ltd. on freight and insurance amount to ₹5,000.
- ABC Traders incurs unloading expenses of ₹2,000 and sells the goods for ₹1,20,000.
- ABC Traders is entitled to a commission of 10% on sales.
- ABC Traders remits the balance to XYZ Ltd. after deducting commission and expenses.
Journal Entries in the Books of Consignor (XYZ Ltd.)
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 1 | Consignment A/c Dr. | 1,00,000 | |
| To Goods Sent on Consignment A/c | 1,00,000 | ||
| 2 | Consignment A/c Dr. | 5,000 | |
| To Bank A/c | 5,000 | ||
| 3 | Consignment A/c Dr. | 2,000 | |
| To Consignee A/c | 2,000 | ||
| 4 | Consignee A/c Dr. | 1,20,000 | |
| To Consignment A/c | 1,20,000 | ||
| 5 | Consignment A/c Dr. | 12,000 | |
| To Consignee A/c | 12,000 | ||
| 6 | Bank A/c Dr. | 1,06,000 | |
| To Consignee A/c | 1,06,000 | ||
| 7 | Profit and Loss A/c Dr. | 1,000 | |
| To Consignment A/c | 1,000 |
Journal Entries in the Books of Consignee (ABC Traders)
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 1 | Consignor A/c Dr. | 2,000 | |
| To Bank A/c | 2,000 | ||
| 2 | Bank A/c Dr. | 1,20,000 | |
| To Consignor A/c | 1,20,000 | ||
| 3 | Consignor A/c Dr. | 12,000 | |
| To Commission A/c | 12,000 | ||
| 4 | Bank A/c Dr. | 1,06,000 | |
| To Bank A/c | 1,06,000 |
Explanation
-
Consignor’s Books
The consignor records the consignment transaction, including the value of goods sent, expenses incurred, sales made, and the commission paid to the consignee. The profit or loss on consignment is determined at the end by comparing the total revenue with the total expenses.
-
Consignee’s Books
The consignee only records transactions related to expenses incurred, sales made on behalf of the consignor, and commission earned. Since the consignee is an agent and not the owner of the goods, no purchase or inventory entry is made.
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