Journal entries in the books of consignee

In consignment, the status of consignee is that of a commission agent. His income is the commission which he receives from consignor for the sale of goods dispatched to him. He has no share in the consignment profit because he is not a business owner. Similarly, he is also not responsible for any loss incurred by the consignment business.

Any expenses incurred by the consignee in connection with the consignment are reimbursed to him.

Journal entries and ledger accounts in the books of consignee

We will first discuss the journal entries in the books of consignee and then talk about the necessary ledger accounts. The common journal entries that a consignee makes in his books are given below:

1. Entry at the time of receiving goods:

No entry

The consignee holds goods on behalf of and on account of consignor. He does not make an accounting entry when he receives the goods consigned to him. He may however, keep the record of goods received in a separate book known as consignment inward book.

2. Entry at the time of making advance to the consignor:

(i). if payment is made in cash or via check or bank draft:

Consignor A/C [Dr]
Cash/Bank A/C [Cr]

(ii). If a bill is accepted as a mode of advance payment:

Consignor A/C [Dr]
Bill payable A/C [Cr]

3. Entry at the time of making payment for consignment related expenses:

Consignor A/C [Dr]
Cash/Bank A/C [Cr]

4. Entry at the time of sale of goods:

(i). If goods are sold for cash:

Cash/Bank A/C [Dr]
Consignor A/C [Cr]

(ii). If goods are sold on credit

See del credere commission and credit sales article

5. Entry for recording commission income:

Consignor A/C [Dr]
Commission received A/C [Cr]

6. Entry at the time of sending remittances:

Consignor A/C [Dr]
Cash/Bank A/C [Cr]

7. Entry to close commission received account to profit and loss account:

Profit and loss A/C [Dr]
Commission received A/C [A/C]

Points to remember:

  1. At the end of the accounting period, if consignor’s account shows a debit or credit balance, it should be presented in the balance sheet. Debit balance is shown as sundry debtors under the head current assets where as credit balance is shown as sundry creditors under the head current liabilities.
  2. No entry regarding the stock on consignment is passed in the books of consignee.
  3. The consignee does not calculate profit or loss on consignment.
  4. The commission received account in the books of consignee is closed to the profit and loss account at the end of the year. It is done by making the journal 7 given above.

The two ledger accounts are important in the books of consignee – consignor’s account and commission received account. Consider the following example:

Example

Ahmad & Co. of Sialkot Consigned goods costing Rs 75,000 to Nasir & Co. of Karachi. Ahmad paid the following expenses:

  • Loading charges: Rs 1,500
  • Insurance: Rs 1,000
  • Freight: Rs 5,000

Nasir & Co. received the delivery and transported the same to a rented godown. T paid the following expenses in respect of consignment:

  • Unloading charges: Rs 1,000
  • Carriage: Rs 2,000
  • Godown rent: Rs 2,500

On the same day, Nasir sent a bank draft of Rs 37,500 to Ahmad as advance against consignment.

Nasir sold all the goods for Rs 100,000. His commission was 10% on gross sale proceeds. He paid the balance due via bank draft.

Required: Prepare journal entries and ledger accounts in the books of consignee.

Solution

Journal entries in the books of consignee:

Ledger accounts in the books of consignee:

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