CONSIGNMENT ACCOUNTING
Dreams Institute, Fazilka
1. Overview & Core Concept
Consignment Accounting is a business model where a business owner (the Consignor) dispatches goods
to a representative or agent (the Consignee) located in another region to sell the goods on their behalf
in exchange for a remuneration called Commission.
Key Legal Point: Relationship: Principal & Agent. Ownership of the goods remains strictly with the
Consignor until the final sale to the end consumer. The Consignee never becomes the legal owner of
the goods.
2. Essential Terminology
Term Definition & Meaning
Consignor The manufacturer or trader who owns and dispatches the goods.
Consignee The agent or trader who receives the goods and sells them on behalf
of the consignor.
Consignment The agreement and batch/lot of goods being dispatched.
Consignment Agreement The legal document detailing terms, commission rates, and expense
arrangements.
Proforma Invoice A statement prepared by the Consignor sent along with the goods,
showing descriptions, quantities, and estimated values.
Account Sales A periodic report sent by the Consignee to the Consignor detailing
total sales, expenses incurred, commission deducted, and net
balance due.
3. Expenses: Non-Recurring vs. Recurring
Distinguishing between non-recurring and recurring expenses is critical for correct inventory valuation.
Feature / Aspect Non-Recurring Expenses Recurring Expenses
Definition Expenses incurred to move goods Maintenance expenses incurred
up to the godown/warehouse. after goods reach the godown.
Incurred By Mainly Consignor; Consignee up to Mainly Consignee during storage
warehouse arrival. and sales process.
Key Examples Freight, Carriage, Octroi, Transit Godown Rent, Storage, Insurance,
Insurance, Unloading. Advertising, Sales Expenses.
Stock Valuation INCLUDED in Closing Stock EXCLUDED from Closing Stock
Valuation ✅ Valuation ❌
4. Types of Commission
1. Simple / Ordinary Commission
Standard percentage calculated on total sales made by the Consignee.
2. Overriding Commission
An additional commission offered to motivate the Consignee to sell above a specified price or introduce
new product lines.
3. Del Credere Commission
An extra commission granted to the Consignee for taking on the full risk of bad debts resulting from
credit sales. (If paid, bad debt loss is borne by Consignee; if not paid, bad debt loss is borne by
Consignor).
5. Master Journal Entries
Accounting Logic: Golden Rule for Consignor: The Consignment Account is treated as a Nominal
Account. Debit all costs, expenses, and losses. Credit all sales, revenues, and closing stock.
Transaction / Event In the Books of Consignor (Owner) In the Books of Consignee (Agent)
1. Dispatch of Goods Consignment A/c Dr. No Entry
To Goods Sent on Consignment A/c
2. Expenses paid by Consignment A/c Dr. No Entry
Consignor To Cash / Bank A/c
3. Advance received from Cash / Bank / Bills Receivable A/c Dr. Consignor's A/c Dr.
Consignee To Consignee's A/c To Cash / Bank / Bills Payable A/c
4. Discounting Bills Bank A/c Dr. No Entry
Receivable Consignment A/c Dr.
To Bills Receivable A/c
5. Expenses paid by Consignment A/c Dr. Consignor's A/c Dr.
Consignee To Consignee's A/c To Cash / Bank A/c
6. Goods Sold by Cash / Bank / Debtors A/c Dr.
Consignee To Consignor's A/c
7. Commission due to Consignment A/c Dr. Consignor's A/c Dr.
Consignee To Consignee's A/c To Commission Income A/c
8. Recording Unsold Consignment Stock A/c Dr. No Entry
Stock To Consignment A/c
9. Profit / Loss on Consignment A/c Dr. No Entry
Consignment To Profit & Loss A/c (For Profit)
Profit and loss a/c Dr.
To Consignment A/c
10. Transfer Goods Sent Goods Sent on Consignment A/c Dr. No Entry
A/c To Trading A/c
Nature of Goods Sent on Consignment
Goods Sent on Consignment means goods sent by the consignor to the consignee to sell on the
consignor's behalf. Ownership of the goods does not transfer to the consignee.
Definition
Consignment is an arrangement in which:
Consignor = Owner of the goods who sends them.
Consignee = Agent who receives the goods and sells them for the consignor.
Journal Entry (in the books of the Consignor)
When goods are sent at cost price:
Consignment A/c Dr.
To Goods Sent on Consignment A/c
When goods are sent at invoice price (cost + loading), the same entry is passed using the invoice
value:
Consignment A/c Dr.
To Goods Sent on Consignment A/c
Later, the loading (profit included in invoice price) is removed through adjustment entries.
Example
Cost of goods = ₹1,00,000
Goods sent on consignment = ₹1,00,000
Entry:
Consignment A/c Dr. ₹1,00,000
To Goods Sent on Consignment A/c ₹1,00,000
Important Exam Points
✅ Ownership remains with the consignor until the goods are sold.
✅ Consignee earns commission, not profit from the goods.
✅ Unsold goods are called closing stock on consignment and belong to the consignor.
✅ If goods are sent at invoice price, remember to adjust the loading (the excess over cost).
Easy trick:
Consignment = Sending goods to an agent for sale, without transferring ownership.
Goods Sent on Consignment Account is a Nominal Account.
Why?
It is not a real asset account. It is a trading account used to transfer the cost (or invoice value) of
goods from the Purchases/Trading Account to the Consignment Account.
Rule of Nominal Account:
Debit all expenses and losses
Credit all incomes and gains
When goods are sent:
Consignment A/c Dr.
To Goods Sent on Consignment A/c
Here, Goods Sent on Consignment A/c is credited because it reduces the goods available for normal
trading and transfers them to the consignment business.
Exam Point
Goods Sent on Consignment A/c → Nominal Account
Consignment A/c → Nominal Account
Consignee's A/c → Personal Account
Stock on Consignment A/c → Real Account (Asset)
Consignment Stock Account (Stock on Consignment Account)
is a Real Account (Asset Account).
Why?
It represents the unsold goods lying with the consignee at the end of the accounting period. Since these goods
are still owned by the consignor, they are an asset.
Rule of Real Account:
Debit what comes in
Credit what goes out
Closing Entry
When closing stock on consignment is valued:
Stock on Consignment A/c Dr.
To Consignment A/c
This entry records the unsold stock as an asset and reduces the cost charged to the Consignment Account.
Exam Tip (Types of Accounts)
Account
Type of Account
Consignment A/c
Nominal Account
Goods Sent on Consignment A/c
Nominal Account
Consignee's A/c
Personal Account
Stock on Consignment A/c
Real Account (Asset)
Bank/Cash A/c
Real Account
6. Closing Stock Valuation
Valuation Principle: Standard Rule: Closing stock is valued at Cost Price or Net Realizable Value
(Market Price), whichever is lower.
Formula for Unsold Stock
Total Value of Stock = Basic Cost of Unsold Units + Proportionate Non-Recurring Expenses
Proportionate Non-Recurring Expenses = Total Non-Recurring Expenses × (Unsold Quantity ÷ Total
Quantity Dispatched)
7. Solved Practical Example
A of Gorakhpur consigns 300 calculators costing ₹250 each to B of Faridabad.
• Consignor's Expenses: Freight & Carriage = ₹1,500; Transit Insurance = ₹900.
• Consignee's Expenses: Unloading Charges = ₹400; Octroi = ₹200; Carriage = ₹800; Godown Rent =
₹500; Selling Expenses = ₹320.
• Sales: B sells 200 calculators. 100 calculators remain unsold.
Step-by-Step Solution:
Step 1: Unsold Units: 300 units sent - 200 units sold = 100 unsold units
Step 2: Basic Cost: 100 units × ₹250 = ₹25,000
Step 3: Consignor Non-Recurring Expenses: Total = ₹1,500 + ₹900 = ₹2,400
Proportionate (100/300) = ₹2,400 × (100 / 300) = ₹800
Step 4: Consignee Non-Recurring Expenses: Total = Unloading (₹400) + Octroi (₹200) + Carriage (₹800) =
₹1,400
(Note: Godown rent & selling expenses are recurring and excluded)
Proportionate (100/300) = ₹1,400 × (100 / 300) = ₹467 (approx)
Step 5: Total Calculated Cost: ₹25,000 + ₹800 + ₹467 = ₹26,267
Step 6: Final Comparison: If Market Price > ₹26,267 -> Value at Cost (₹26,267)
If Market Price < ₹26,267 -> Value at Market Price
Consignment Accounts: Goods Sent at Invoice Price
1. Core Concept: What is Invoice Price?
Normally, goods are sent at cost price. When sent at invoice price, the consignor adds a profit margin
(loading).
Invoice Price = Cost Price + Profit Margin (Loading)
2. Why Send Goods at Invoice Price?
Hides actual cost and profit margin from consignee.
Prevents demands for higher commission.
3. Accounting Procedure
1. Prepare Consignment Account at Invoice Price.
2. Remove loading on Goods Sent by credit adjustment.
3. Remove loading on Closing Stock by debiting Stock Reserve/Stock Suspense.
4. Transfer actual profit to Profit & Loss Account.
4. Example
Goods Consigned: Invoice ₹80,000; Cost ₹60,000
Consignor Expenses: Carriage & Wages ₹800, Freight ₹700, Insurance ₹400 (Total ₹1,900)
Consignee Expenses: Octroi & Freight ₹200 (non-recurring), Go-down Rent ₹600, Fire Insurance
₹400
Sales: Credit ₹40,000, Cash ₹24,000 (Total ₹64,000)
Closing Stock (Invoice Value): ₹16,000
Commission: 5% on total sales + 3% del credere on credit sales
Working Notes
Ordinary Commission = 5% × 64,000 = ₹3,200
Del Credere Commission = 3% × 40,000 = ₹1,200
Total Commission = ₹4,400
Closing Stock Value = ₹16,000 + ₹380 (consignor expenses) + ₹40 (consignee non-recurring expenses) =
₹16,420
Loading on Goods Sent = ₹20,000
Loading on Closing Stock = ₹4,000
Consignment Account (Summary)
Debit Particulars ₹ Credit Particulars ₹
Goods Sent 80,000 Sales 64,000
Consignor Expenses 1,900 Closing Stock 16,420
Consignee Expenses 1,200 Loading on Goods 20,000
Sent
Commission 4,400
Stock Suspense 4,000
P&L Profit 8,920
Total 1,00,420 Total 1,00,420
Key Rules
Include only non-recurring expenses in stock valuation.
Do not calculate loading on expenses added to stock value; calculate only on invoice value of unsold
goods.