Definition and Explanation of

Consignment:
Learning Objectives:

1. Define and explain the terms consignment, consignor and consignee.

The word consignment can be generally defined as the act of sending a quantity of
goods by the manufacturers and producers of one country or place to their agents in
another at the risk of the principals for the purpose of sale.

Goods so sent are known as "consignment". The sender of the goods is called
the consignor. Generally the manufacturers or producers are consignors. The
person to whom goods are forwarded for the purpose of sale is known as
the consignee. The consignment can beclassified as:

1. Outward consignment.
2. Inward consignment.

It is called "outward" when the dispatch of a quantity of goods from one country to
another is made for the purpose of sale and is called "inward" when the receipt of
the quantity of goods is made for the purpose of sale.

Goods sent on consignment do not become the property of the consignee. He has
not bought them. The ownership remains with the sender or the consigner. If the
goods are destroyed, the receiver (consignee) is not responsible. The loss will fall on
the consignor. The consignee tries to sell the goods according to the instructions of
the consignor. When the goods have been sold, he will deduct his expenses,
commission, etc., from the sale proceeds and the balance is remitted to the
consignor. The relationship between the consignor and the consignee is that of
principle and agent. The consignee is the agent. The consignee acts entirely on
behalf of the consignor. The consignee is entitled to his remuneration which is
generally fixed on the basis of a commission of sales. The expenses incurred by the
consignee must also be reimbursed by the principal. It is important to remember
that the consignee does not buy the goods; he merely receives the possession of the
goods.

Distinction/Difference Between
Consignment and Sale:
Learning Objectives:

1. What is the distinction/difference between consignment and sale?

The following are the main points of the difference between consignment and
sale.

Transfer of Legal Ownership of the Goods:

In case of sale, the legal ownership of the goods sold is transferred to the
purchaser of goods. Whereas in case of a consignment of goods , the legal ownership
of the goods is not transferred to the consignment but the ownership of the goods
remains vested in the consignor till the goods consigned are sold by the consignee.

Relationship Between Consignor and Consignee:

In case of a sale of goods, the relationship between the seller and the purchaser of
the goods is that of a creditor and a debtor whereas in case of
a consignment the relationship between the consignor and the consignee is
that of a principal and agent. because the consignee is to sell goods on behalf of
the consignor.

Expenses Incurred:
In consignment, expenses incurred by the consignee in connection with the goods
consigned to him are usually borne by the consignor whereas in case of a sale,
expenses incurred after sale of goods are born by the purchaser.

Risk Attached to the Goods:

In case of consignment, risk attached to the goods sold lies with the
consignor till the goods consigned are sold by the consignee. But in case of a
sale, risk attached to the goods sold is transferred to the buyer of goods.

Return of Goods:
In case of consignment, return of goods is possible if the goods are not sold by the
consignee. But in case of sale, return of goods is not possible as goods once sold are
not returnable.

Requirement of Account Sale:

In case of consignment, account sale is required to be submitted periodically by the
consignee to the consignor. But in case of sales no account sale is required to be
submitted by the purchaser to the seller.
Definitions of Important Terms Used in
Consignment Accounting:
Learning Objectives:

1. Define the most important terms used in consignment account.

Commission:
The term commission as used in connection with consignment denotes the
remuneration of the consignee for selling the goods of the consignor. This
commission is generally calculated at a rate percentage on the gross proceeds of the
sales.

Del Credere Commission:

The del credere commission is an extra commission allowed to the consignee on
his guaranteeing the realization of the debts in full, in connection with the credit sale
of goods on consignment. Goods may be sold by the consignee either for cash or on
credit. When they are sold on credit, the consignee may guarantee that they will be
duly paid for and that he will be liable to indemnify the consignor for all bad debts.
In such cases; the consignor pays the consignee an extra commission for this
guarantee. The extra commission is called del credere commission.

Advance Against Consignment:

Usually the consignee is asked to accept a bill of exchange to cover part of the value
of goods. This is a guarantee by the consignee that when sales are effected, he will
make the necessary payment. Of course, instead of a bill of exchange, the agent
may remit a sum of money to the principle as an advance. This advance or the
amount of the bill of exchange will be adjusted when the goods are sold.

Consignment Account:
The consignment account is one which shows what profit or loss is made out of the
dealing of the goods sent on consignment. It is the combination of the trading and
profit and loss account of any particular consignment.

Pro forma Invoice:

When the consignor sends the goods to the consignee, he forwards a statement
showing the particulars such as quantity, quality, price of goods etc. This statement
is called the Pro forma invoice. But in case of regular sale, an invoice is prepared
and sent along with the goods. It implies that a sale has taken place.
Account Sale:
An account sale is a statement prepared and sent by the consignee to the consignor
at periodical intervals, dealing there in the goods sold, price realized, expenses
incurred, commission payable to and the net amount due from the consignee. The
following is a specimen form:

[Format/Example of Account Sale]

Account sales of 75 cases of fancy goods received from and sold on

account and risk of Messers A & Co.
$ $
35 case of fancy goods at $150 per case 5,250
40 cases of fancy goods at $200 per case 8,000
13,250
Less Charges and Expenses:
Freight & Cartage 50
Brokerage 10
Insurance 150
Storage 200
Commission at 10 percent of sales 1,325
1,735

11,515
Less Amount of our acceptance given in advance 10,000

Bank draft now enclosed 1,515

E. & O. E. Signed:
New York, 26 December. 2009 A & Co.

Consignment Accounting Journal

Entries:
Learning Objectives:

1. Make journal entries in the books of consignor and that of consignee.

As the goods sent on consignment by the consigner are not his sales, he must not
record consignment as sales and the consignee must must not record them as
purchases. The consigner should not take up any profit on the transaction until the
goods have been actually sold by the consignee. Since the goods still belong to the
consignor, any unsold goods in the hands of the consignee at the end of the trading
period should be included in the consignor's stock. The recording of the consignment
transactions in the books of the consignor and consignee will be made in the
following manner:

Accounting Entries in the Books of Consignor:

(1) On dispatch of goods:-
Consignment account (With the cost of
To Goods sent on consignment account goods)

(2) On payment of expenses on dispatch:-

Consignment account (With the amount
To Bank account spent as expenses)

(3) On receiving advance:

Cash or bills receivable account (With the amount
To Consignee's personal account cash or bill)

(4) On the consignee reporting sale (as per A/S):-

Consignee's personal account (With gross proceeds
To Consignment account of sales)

(5) For expenses incurred by the consignee (as per A/S):-

Consignment account (With the amount of
To Consignee's personal account expenses)

(6) For commission payable to the consignee:-

Consignment account (With the amount of
To Consignee's personal account expenses)

Assuming that all the goods sent have been sold, the consignment account will show
at this stage the actual profit or loss made on it. The same is transferred to profit
and loss account.

The entry in case of profit is:

Consignment account
To profit and loss account
In case of loss the entry is:

Profit and loss account

To Consignment account
Note: The goods sent on consignment account may be closed by a transfer to
trading account.
When Consignment is Partly Sold:

When all the goods sent on consignment have not been sold., the value of unsold
goods in the hands of the consignee must be ascertained and the profit or loss
should be found out by taking this stock into account. The entry is:

Stock on consignment account

To Consignment account
Stock on consignment account is an asset and will be shown in the balance
sheet of the consignor. Valuation of stock is discussed on valuation of stock
page.

Accounting Entries in the Books of Consignee:

(1) When consignment goods are received:-
No entry is made in the books of account. The consignee is not
the owner of the goods and therefore he makes no entry when
he receives the goods.
(2) For expenses incurred by the consignee:-
Consignor's personal account
To Cash account
(3) When advance is given:-
Consignor's personal account
To Cash or bills payable account
(4) When goods are sold:-
Cash or bank account
To Consignor's personal account
(5) For commission due:-
Consignor's personal account
To commission account

The consignor's account will be closed by debiting it with cash or final bill or draft in
settlement.

Valuation of Unsold Stock Or Closing

Stock in Consignment Accounting:
Learning Objectives:

1. How is the closing stock or unsold stock laying with the consignee valued?.

The valuation of stock laying with the consignee at the time of final closing of the
account of the consignor is generally made at cost or market price whichever is less.
The meaning of cost, however, should be properly understood. Cost should not mean
merely the cost at which the consignor invoices the goods. If such expenses as
normally increase the value of goods have been incurred, a proportionate of such
expenses should be included in the cost. In other words, all the expenses incurred to
move the goods from the consignor's premises to the premises of consignee should
be included. Expenses which are incurred up to the moment the goods are received
into the godown of the consignee are treated as part of the cost. But expenses
incurred after the goods have been put into the godown should not be included into
the cost because such expenses do not increase the value of goods. Examples of
such expenses are godown rent, insurance godown, advertisement, salaries of
salesmen, etc. It does not matter who pays the expenses (consignor or consignee).

Example:
Suppose, 1000 units are dispatched at a cost of $20 each. The consignor pay $100
for insurance in transit and $200 for packing. The consignee pays 700 for freight,
$100 as octroi duty and $100 as cartage. He also pays $200 as godown rent and
$150 as insurance premium. The last two items will be excluded while calculating the
cost. The total cost will be $20,000 + $100 + 200 + 700 + $100 + $100 = $21,200.
The cost per unit, therefore, comes to $21.20. If 100 units remain unsold, the value
of stock will be: 100 × 21.20, i.e., $2,300. If the market price is less than this figure,
then the value of stock will be on the basis of market price.

Valuation and Treatment of Normal and

Abnormal Loss in Consignment
Accounting:
Learning Objectives:

1. How are the normal and abnormal losses are calculated and treated in
consignment accounting?

Normal Loss:
Normal loss of goods should also be considered while valuing the closing stock or
unsold stock. Normal loss means inherent and unavoidable loss. For example if a
certain quantity of coal is consigned, some of it is bound to be lost because of
loading and unloading and because of some of it turning into dust. In the nature of
coal shortage is unavoidable.

Example:

Suppose 100 tons of coal are despatched. The cost of one ton of coal is $20 and the
freight incurred is $470. To the consignor the total cost is $2,470. Suppose, the
consignee receives only 95 tones. In that case the consignor can say that the cost of
one ton of coal is $2,470/95 or $26. If 20 tons of coal are left unsold with the
consignee, the value of stock will be $20 × $26 = $520.
Abnormal Loss:
Some losses are accidental or may arise out of carelessness. For example, theft of
goods or destruction of goods by fire. Such losses are more or less abnormal and in
any case, do not occur often. Suppose part of the goods stolen. This will reduce the
value of stock and, therefore, the profit on consignment. In order to see the effect of
theft clearly, it is better to find out the value of the goods thus lost. After finding out
the value, the consignment account is credited and profit and loss account is debited.
The effect of this will be that the consignment account will show its proper profit and
in the profit and loss account this profit will be reduced to show actual profit. If part
of the loss is recoverable from an insurance company, the amount which can be
recovered should be deducted from the loss for the purpose of debiting the profit and
loss account. The amount of the loss should be calculated like stock on consignment.

Example/Problem of Abnormal Loss:

1,000 Motors were consigned by A & Co., of Lahore to Bashir of Karachi at an invoice
cost of $150 each. A & Co., paid freight $10,000 and insurance $1,500. During
transit 100 motors were completely destroyed. Bashir took delivery of the remaining
motors and paid $14,400 as duty.

Bashir sent a bank draft to A & Co., for $50,000 as an advance payment and later
sent an account sale showing that 800 motors were sold at $220 each. Expenses
incurred by Bashir on godown rent and advertisement etc., amounted to $2,000.
Bashir is entitled to commission of 5 per cent.

Required: Prepare consignment account and Bashir's account in the books of A &
Co., assuming that nothing has been recovered from the insurance company due to
defect in the policy.

Consignment to Karachi Account

$ $
To Goods sent on consignment 1,50,000 By sales (800 × 220) 1,76,000
To Bank - freight and insurance 11,500 By Profit and loss account - Ab. Loss* 16,150
To Bashir - duty 14,400 By Stock on consignment** 17,750
To Bashir - expenses 2,000
To Bashir - commission 8,800
To Profit and loss account 23,200

2,09,900 2,09,900

Bashir

$ $
To Consignment
1,76,000 By Bank 50,000
account
By Consignment account
 Duty 14,400
Expenses 2,000
16,400
By Consignment account-commission 8,800
By Balance c/d 1,00,800

1,76,000 1,76,000

Working Note:

(1) *Calculation of abnormal loss:

100 motors at $150 each $15,000
Add 100/1000 of freight and insurance (11,500 × 100/1000) 1,150

Abnormal loss 16,150

(2) **Calculation of Closing Stock:

100 motors at $150 each $15,000
Add 100/1000 of freight and insurance (11,500 × 100/1000) 1,150
100/900 of duty 1,600

Closing stock or unsold stock 17,750

Invoicing Goods Higher Than Cost in

Consignment:
Learning Objectives:

1. What is the accounting treatment when consignor invoices goods higher than
the actual cost?

Sometimes in place of sending the goods to the consignee at cost price the consignor
invoices them at higher price, the object being not to disclose to the consignee the
amount of consignor's profit. The pro-forma invoice is sent to the consignee. The real
cost of the goods is not disclosed. Therefore the entries made in this case are a little
different from those if the goods are sent at actual cost. The difference in entries is
only in respect of goods sent on consignment and stock. When goods are invoiced at
selling price, the following entries are made:

1. On sending goods at invoice price i.e., higher than cost:-

Consignment Account Dr.

 To Goods Sent on Consignment Account Cr.

2. At the end of the year difference between the invoice price and the cost will
be credited to the consignment account by debiting goods sent on
consignment account. For example, if the goods costing $10,000 are invoiced
at $12,000 an entry will have to be made at the end of the year for $2,000.

Goods Sent on Consignment Account Dr.

To Consignment Account Cr.

The purpose of this entry is to show the cost of goods sent out and calculate
the profit on consignment.

3. The stock in hand at the end of the year (unsold stock) with the consignee
will be valued according to the invoice price plus the share of expenses. The
usual entry is:-

Stock on Consignment Account Dr.

To Consignment Account Cr.

4. As the stock should not be shown at more than cost, therefore, the difference
in entry No. 3 above will be calculated and the following entry will be passed:

Consignment Account Dr.

To Stock Reserve Account Cr.

In the balance sheet, the stock reserve account will appear on the asset side as
reduced from the stock on the consignment account.

Example:
Rashid of city A sends 100 sewing machines on consignment to Malik of city B. The
cost of each machine is $130 but the invoice price is at the rate of $160 each. Rashid
spends $400 on packing and despatch. Malik receives the consignment and
immediately accepts Rashid's draft for $8000. Subsequently, Malik informs Rashid
that 80 machines have been sold at $175 each. Expenses paid by Malik are; freight
$600, godown rent $50, and insurance $100. Malik is entitled to a commission of 6
per cent on sales and 1-1/2 percent as del credere commission.

Give journal entries in the books of Rashid . Also prepare necessary ledger accounts:

Solution:

Journal

Consignment to city B 16,000

To Goods sent on consignment account 16,000
(100 machines at $160 each sent on consignment)

Consignment to city B 400

 To Cash account 400
(Expenses incurred on consignment)

Bills receivable account 8,000

To Malik 8,000
(Malik's acceptance received)

Malik 14,000
To Consignment to city B account 14,000
(80 machine's sold Malik at $175 each)

Consignment to city B account 750

To Malik 750
(Expenses incurred)

Consignment to city B account 1,050

To Malik 1,050
(Commission at 6% plus 1-1/2 on sales)

Consignment to city B account 600

To Stock reserve account 600
(Difference in closing stock adjusted)

Stock on consignment account 3,400

To Consignment to city B account 3,400
(Value of 20 machines in the hands of Malik)

Goods sent on consignment account 3,000

To Consignment to city B account 3,000
(The difference in the invoice value and cost, $30 per machine
adjusted)

Goods sent on consignment account 13,000

To Trading account 13,000
(Transfer of goods sent on consignment to trading account)

Consignment to city B account 1,600

To Profit and loss account 1,600
(Transfer of profit on consignment)

Consignment to City B Account

$ $
To Goods sent on consignment 16,000 By Malik - Sales proceed 14,000
To Cash - Expenses 400 By Stock on consignment 3,400
To Malik - Expenses: By Goods sent on consignment 3,000
Freight 600
Rent 50
 Insurance 100
750
To Malik - Commission 1,050
To Consignment stock reserve 600
To Profit and loss account 1,600

20,400 20,400

Malik

$ $
To Consignment to city B account 14,000 By Bills receivable account 8,000
By Consignment to city B account
Expenses 750
Commission 1,050
By Balance c/d 4,200

14,000 14,000

Consignment Accounting Exercises and

Problems:
Learning Objectives:

1. Prepare journal entries, consignment account and consignee account in the

books of consignor.
2. Prepare journal entries and consignor account in the books of consignee.

Problem 1 (Journal Entries and Ledger Accounts):

Riaz Sugar Factory of Multan, consigned to Mr. Shahid of Lahore 400 bags of sugar
at $25 per bag. They also paid cartage, freight, etc. $250. The consignor drew on
consignee as an advance against the consignment at 3 months for $6,000 which they
discounted at their bank at 5 percent. The consignee sold off the goods and rendered
an account sales showing that the goods realized $12,000, out of which he deducted
his charges amounting to $80 and his commission at 5 percent.

Required: Make journal entries in respect of the above transactions in the books of
consignor as well as the consignee
Solution:

Consignor's Books

JOURNAL ENTRIES

Dr. Cr.
$ $
Consignment to Lahore account 10,000
To Goods sent on consignment account 10,000

Consignment to Lahore account 250

To Bank account 250

Bills receivable account 6,000

To Shahid Ali 6,000

Bank account 5,925

Discount account 75
To Bills receivable account 6,000

Shahid Ali 12,000

To Consignment to Lahore account 12,000

Consignment to Lahore account 680

To Shahid Ali 680

Bank 5320
To Shahid Ali 5320

Consignment to Lahore account 1,070

To Profit and loss account 1,070

Goods sent on consignment account 10,000

To Trading account 10,000

LEDGER ACCOUNTS

Consignment to Lahore Account

$ $
Dr. Cr.
By Shahid Ali - Sales
To Goods sent on consignment 10,000 12,000
Proceeds
To Bank expenses 250
To Shahid Ali 680
To Profit and loss account 1,070

12,000 12,000

Goods Sent on Consignment Account

$ $
Dr. Cr.
By Consignment to
To Trading account 10,000 10,000
Lahore

Bank Account

Dr. Cr.
$ $
By Consignment to
To Bills receivable 5,925 250
Lahore
To Shahid Ali 5,320

Shahid Ali (Consignee)

Dr. Cr.
$ $
To Consignment to Lahore 12,000 By Bills receivable 6,000
By Consignment to
680
Lahore
By Bank account 5,320

12,000 12,000

Bills receivable Account

Dr. Cr.
$ $
To Shahid Ali 6,000 By Bank 5,925
By Discount 75

6,000 6,000

Discount Account
 Dr. Cr.
$ $
By Profit and loss
To Bills receivable 75 75
account

Profit and Loss Account

Dr. Cr.
$ $
By Consignment to
1,070
Lahore

Trading Account

Dr. Cr.
$ $
By Goods sent on
10,000
consignment

Consignee's Books

JOURNAL ENTRIES

Dr. Cr.
$ $
Riaz sugar factory 6,000
To Bills payable account 6,000

Riaz sugar factory 80

To Bank account 80

Bank account 12,000

To Riaz sugar factory 12,000

Riaz sugar factory 600

To Commission account 600

Riaz sugar factory 5,320

To Bank account 5,320

Bills payable 6,000

 To Bank account 6,000

LEDGER ACCOUNTS

Riaz Sugar Factory (Consignor)

Dr. Cr.
$ $
To Bills payable 12,000 By Bank account 12,000
To Bank - expenses 80
To Commission 600
To Bank - Balance 5,320

12,000 12,000

Bank Account

Dr. Cr.
$ $
To Riaz sugar factory 12,000 By Riaz sugar factory 80
By Riaz sugar factory 5,320
By Bills payable 6,000

Commission Account

Dr. Cr.
$ $
To Profit and loss account 600 By Riaz sugar factory 600

Bills Payable Account

Dr. Cr.
$ $
To Bank 6,000 By Riaz sugar factory 6,000

Problem 2 - (Abnormal Loss):

1,000 Motors were consigned by A & Co., of Lahore to Bashir of Karachi at
an invoice cost of $150 each. A & Co., paid freight $10,000 and insurance $1,500.
During transit 100 motors were completely destroyed. Bashir took delivery of the
remaining motors and paid $14,400 as duty.

Bashir sent a bank draft to A & Co., for $50,000 as an advance payment and later
sent an account sale showing that 800 motors were sold at $220 each. Expenses
incurred by Bashir on godown rent and advertisement etc., amounted to $2,000.
Bashir is entitled to commission of 5 per cent.

Required: Prepare consignment account and Bashir's account in the books of A &
Co., assuming that nothing has been recovered from the insurance company due to
defect in the policy.

Solution

Consignment to Karachi Account

$ $
To Goods sent on consignment 1,50,000 By sales (800 × 220) 1,76,000

To Bank - freight and insurance 11,500 By Profit and loss account - Ab. Loss* 16,150
To Bashir - duty 14,400 By Stock on consignment** 17,750
To Bashir - expenses 2,000
To Bashir - commission 8,800
To Profit and loss account 23,200

2,09,900 2,09,900

Bashir

$ $
To Consignment
1,76,000 By Bank 50,000
account
By Consignment account
Duty 14,400
Expenses 2,000
16,400
By Consignment account-commission 8,800
By Balance c/d 1,00,800

1,76,000 1,76,000

Working Note:

(1) *Calculation of abnormal loss:

100 motors at $150 each $15,000
Add 100/1000 of freight and insurance (11,500 × 100/1000) 1,150
 Abnormal loss 16,150

(2) **Calculation of Closing Stock:

100 motors at $150 each $15,000
Add 100/1000 of freight and insurance (11,500 × 100/1000) 1,150
100/900 of duty 1,600

Closing stock or unsold stock 17,750

Problem 3 (Invoicing Goods Higher Than Cost):

Rashid of city A sends 100 sewing machines on consignment to Malik of city B. The
cost of each machine is $130 but the invoice price is at the rate of $160 each. Rashid
spends $400 on packing and despatch. Malik receives the consignment and
immediately accepts Rashid's draft for $8000. Subsequently, Malik informs Rashid
that 80 machines have been sold at $175 each. Expenses paid by Malik are; freight
$600, godown rent $50, and insurance $100. Malik is entitled to a commission of 6
per cent on sales and 1-1/2 percent as del credere commission.

Give journal entries in the books of Rashid . Also prepare necessary ledger accounts:

Solution:

Journal

Consignment to city B 16,000

To Goods sent on consignment account 16,000
(100 machines at $160 each sent on consignment)

Consignment to city B 400

To Cash account 400
(Expenses incurred on consignment)

Bills receivable account 8,000

To Malik 8,000
(Malik's acceptance received)

Malik 14,000
To Consignment to city B account 14,000
(80 machine's sold Malik at $175 each)

Consignment to city B account 750

To Malik 750
(Expenses incurred)

Consignment to city B account 1,050

 To Malik 1,050
(Commission at 6% plus 1-1/2 on sales)

Consignment to city B account 600

To Stock reserve account 600
(Difference in closing stock adjusted)

Stock on consignment account 3,400

To Consignment to city B account 3,400
(Value of 20 machines in the hands of Malik)

Goods sent on consignment account 3,000

To Consignment to city B account 3,000
(The difference in the invoice value and cost, $30 per machine
adjusted)

Goods sent on consignment account 13,000

To Trading account 13,000
(Transfer of goods sent on consignment to trading account)

Consignment to city B account 1,600

To Profit and loss account 1,600
(Transfer of profit on consignment)

Consignment to City B Account

$ $
To Goods sent on consignment 16,000 By Malik - Sales proceed 14,000
To Cash - Expenses 400 By Stock on consignment 3,400
To Malik - Expenses: By Goods sent on consignment 3,000
Freight 600
Rent 50
Insurance 100
750
To Malik - Commission 1,050
To Consignment stock reserve 600
To Profit and loss account 1,600

20,400 20,400

Malik

$ $
To Consignment to city B account 14,000 By Bills receivable account 8,000
By Consignment to city B account
Expenses 750
 Commission 1,050
By Balance c/d 4,200

14,000 14,000

Consignment Accounting Questions and

Answers:
Learning Objectives:

1. Answer the various general questions about consignment accounting.

Theoretical Questions:
1. Distinguish between a sales and consignment. Click here to see answer.
2. What is "consignment of goods"? Is it the same as "goods on sale or
return" Click here to see answer.
3. Describe how the consignment account is maintained in the books of
(a) consignor (b) the consignee. Click here to see answer.
4. Write a not on "del credere commission". Click here to see the explanation of
del credere commission.
5. If a consignment remains partly unsold (closing stock or unsold stock) at the
time of balancing the books, how do you deal with it? Click here to see the
answer.

Objective:
State whether each of the following statements is 'true' or 'false'.

1. Despatch of goods on consignment amounts to sale of goods by the

consignor.
2. A consignee is paid over-riding commission for bearing the risk of bad
debts on account of credit sales made by him.
3. Sales account and account sales are synonymous terms.
4. The consignee passes no entry in his books for unsold stock of the consignor,
lying with him.
5. Discount on bills discounted is debited on profit and loss account and not to
theconsignment account on account of it being treated as a financial expense.
6. Abnormal loss of stock arises on account of natural and inherent
characteristics of goods.
7. As soon as goods are sent to the consignee, consignee becomes liable to pay
for them.
8. Account sales is submitted by consignee to the consignor.
9. Value of abnormal loss or stock is debited to consignment account.
Answers:

1. False 2. False 3. False

4. True 5. True 6. False
7. False 8. True 9. False

Fill in the Blanks:

1. Goods despatched by a manufacturer or wholesaler to an agent for the
purpose of sale are called ----------------------.
2. Abnormal loss is credited to ------------------------ account.
3. Del-Credere commission is normally calculated on ---------------------- sales.
4. The document giving the description of goods and their price sent to the
consignee by the consignor is known as -------------------------.
5. Consignment account of the nature of a ------------------------- account.

Answers:

1. Consignment 2. Consignment 3. Total

4. Pro forma invoice 5. Normal

Choose the Best Answer:

1. In accounting consignment, signifies
(a). goods forwarded from one place to another
(b). goods forwarded by a person to another.
(c). goods despatched by its owner to its agent
(d). goods despatched by it owner to his agent for the purpose of sale.
2. Goods sent on consignment should be debited by consignor to:
(a). consignment account
(b). goods sent on consignment account
(c). consignors account
3. In the books of consignor the balance of the consignment stock would be
shown:
(a). as an asset in the balance sheet.
(b). as liability in the balance sheet.
(c). On the credit side of the trading account.
4. In the books of consignee, on despatch of goods by the consignor the entry
would be:
(a). Consignment account [Dr.]
To goods sent on consignment account [Cr.]
(b). consignment account [Dr.]
To consignor account [Cr.]
(c). No entry
5. In the books of consignee the expenses incurred by him on consignment are
debited to:
(a). consignment account
(b). cash account
(c). consignor's account
 6. In the books of consignee the sale of goods is credited to:
(a). consignor's account
(b). sales account
(c). consignee's account

Answers:

1. d 2. a 3. a
4. c 5. c 6. a