Financial Accounting II Consignement Accounts

Flashcards on Consignment Accounts

Consignment Sale

A business arrangement where a manufacturer or trader (consignor) agrees with a third party (consignee) to make a sale.

Objectives of Consignment Sale

To increase sales volume, capture the market, earn higher revenue, grow the business, maintain sustainability, and utilize the consignee's expertise.

Features of Consignment Sales

The consignor sends goods, unsold goods remain the consignor's property, the consignee receives commission and expense reimbursement, the consignee sends account sales, the consignee remits net proceeds, only possession transfers, and profit/loss belongs to the consignor.

Consignor

The person who sends goods to an agent for sale on a commission basis.

Consignee

An agent who sells goods on a commission basis on behalf of the consignor.

Consignment Agreement

An agreement between consignor and consignee for storage, transfer, sale, resale, and use of goods.

Commission

Amount payable to the consignee for selling goods, as per the agreement terms.

Ordinary Commission

Paid as a percentage of sales, not covering the risk of bad debts.

Del Credere Commission

Commission to cover the risk of loss due to bad debts, making the consignee responsible for such losses.

Overriding Commission

Additional commission for extra efforts to increase sales, calculated on total sales.

Account Sales

A statement accounting for all transactions at the consignee's end, prepared periodically and sent to the consignor.

Recurring Expenses

Expenses that occur regularly in day-to-day business operations.

Non-Recurring Expenses

Irregular or one-time expenses not expected to be repeated regularly.

Pro-Forma Invoice

A commercial document detailing agreement terms like pricing between a consignor and consignee.c

Consignment Account

Account to find out profit or loss on a particular consignment (nominal account).

Consignee Account

A personal account showing the balance due from the consignee.

Goods Sent on Consignment Account

A real account where goods sent on consignment are credited, closed by transferring to a trading account.

Value of Unsold Stock

Purchasing price of unsold stock and proportionate direct expenses incurred by consignor and consignee.

Non-Recurring/Direct Expenses (Consignor)

Expenses paid to send goods to the consignee (e.g., freight, loading charges, custom duty).

Non-Recurring/Direct Expenses (Consignee)

Expenses to bring goods to the consignee's godown (e.g., unloading, freight, custom duties).

Recurring/Indirect Expenses

Expenses after goods reach the godown (e.g., rent, insurance, advertisement).

Normal Losses

Losses due to expected but unavoidable causes (e.g., evaporation, leakage).

Abnormal Losses

Losses caused by unnatural and unexpected reasons (e.g., fire, flood, theft).