Accounting For Consignment / Consignment Accounts:
Learning Objectives:
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Define and explain the terms
consignment, consignor and consignee.
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What is the difference between
consignment and sale?
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Make journal entries in the
books of consignor and that of consignee.
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Prepare consignment account
and consignee's account in the books of consignor.
Definition and
Explanation of Consignment:
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
principal for the purpose of sale.
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Distinction/Difference
Between Consignment and Sale:
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.
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Definitions of
Important Terms Used in Consignment Accounting:
Find the definitions of some important terms
used in accounting for consignment
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Consignment Accounting
Journal Entries:
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.
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Valuation
of Unsold Stock Or Closing Stock in Consignment Accounting:
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.
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Valuation and Treatment of Normal and
Abnormal Loss in Consignment Accounting:
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.
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Invoicing Goods Higher
Than Cost in Consignment:
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.
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Consignment Accounting
Problems, Exercises and Questions:
A number of solved problems about
consignment accounting.
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here to see
Consignment
Accounting Questions and Answers:
Find the answers of various general
questions about consignment accounting.
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