Here details wise with example given a consignment accounting entries. Consignment accounting deals with recording transactions related to goods sent by a consignor to a consignee for sale. The consignor retains ownership of the goods until they are sold. This method ensures accurate tracking of goods and revenue generated from consignment sales.
Key Terms
- Consignor: The owner of the goods who sends them to another party (the consignee) for sale.
- Consignee: The party who receives the goods from the consignor and sells them on behalf of the consignor.
Consignment Accounting Entries
1. Recording Goods Sent on Consignment
When the consignor sends goods to the consignee, the following journal entry is made:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | Consignment Outward A/C | Amount | Record goods sent on consignment | |
| DD-MM-YYYY | To Inventory | Amount | Goods sent on consignment |
Example: On 01-07-2023, a business sends goods worth ₹200,000 to a consignee.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-07-2023 | Consignment Outward A/C | 200,000 | Record goods sent on consignment | |
| 01-07-2023 | To Inventory | 200,000 | Goods sent on consignment |
2. Recording Expenses Incurred by Consignor
The consignor may incur expenses related to the consignment, such as freight and insurance.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | Consignment Expenses A/C | Amount | Record consignment expenses | |
| DD-MM-YYYY | To Cash/Bank | Amount | Payment of consignment expenses |
Example: On 05-07-2023, the consignor incurs ₹10,000 in freight expenses.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 05-07-2023 | Consignment Expenses A/C | 10,000 | Record consignment expenses | |
| 05-07-2023 | To Cash | 10,000 | Payment of consignment expenses |
3. Recording Sales Made by Consignee
When the consignee sells the goods, the consignor records the sales and the consignee’s commission.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | Cash/Bank | Amount | Record sales proceeds received | |
| DD-MM-YYYY | To Consignment Sales A/C | Amount | Sales made by consignee |
Example: On 15-07-2023, the consignee sells goods worth ₹250,000 and the consignor receives the proceeds.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 15-07-2023 | Cash/Bank | 250,000 | Record sales proceeds received | |
| 15-07-2023 | To Consignment Sales A/C | 250,000 | Sales made by consignee |
4. Recording Consignee’s Commission
The consignee earns a commission on the sales made, which is recorded by the consignor.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | Consignment Commission A/C | Amount | Record consignee’s commission | |
| DD-MM-YYYY | To Consignee’s Account | Amount | Consignee’s commission liability |
Example: If the consignee’s commission is 10% of sales, then the commission on ₹250,000 is ₹25,000.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 15-07-2023 | Consignment Commission A/C | 25,000 | Record consignee’s commission | |
| 15-07-2023 | To Consignee’s Account | 25,000 | Consignee’s commission liability |
5. Recording Consignment Profit or Loss
At the end of the accounting period, the consignor calculates and records the profit or loss on consignment.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| DD-MM-YYYY | Consignment Account | Amount | Transfer consignment expenses | |
| DD-MM-YYYY | To Consignment Expenses A/C | Amount | Transfer consignment expenses | |
| DD-MM-YYYY | Consignment Sales A/C | Amount | Transfer consignment sales | |
| DD-MM-YYYY | To Consignment Account | Amount | Transfer consignment sales | |
| DD-MM-YYYY | Consignment Account | Amount | Consignment profit (if profit) | |
| DD-MM-YYYY | To Profit & Loss Account | Amount | Transfer profit to P&L Account |
Example: If the total consignment expenses are ₹10,000, sales are ₹250,000, and commission is ₹25,000, the consignment profit is ₹215,000 (250,000 – 10,000 – 25,000).
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 31-12-2023 | Consignment Account | 10,000 | Transfer consignment expenses | |
| 31-12-2023 | To Consignment Expenses A/C | 10,000 | Transfer consignment expenses | |
| 31-12-2023 | Consignment Sales A/C | 250,000 | Transfer consignment sales | |
| 31-12-2023 | To Consignment Account | 250,000 | Transfer consignment sales | |
| 31-12-2023 | Consignment Account | 215,000 | Consignment profit | |
| 31-12-2023 | To Profit & Loss Account | 215,000 | Transfer profit to P&L Account |
Conclusion
Accurate consignment accounting is essential for maintaining reliable financial records and ensuring the financial statements reflect the true financial position of the business. By understanding how to create journal entries for consignment transactions, businesses can manage their inventory and revenue effectively.