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Chapter 3: Consignment
Consignment: Consignment means the transaction of sending goods by one person to another, who is
to sell those goods, on behalf of the first person.
Consignor: The person who sends the goods is known as Consignor.
Consignee: The person to whom the goods are sent is known as Consignee.
Relationship: The legal relationship between these two persons is that of principal and agent.
Outward/ Inward Consignment: The consignment is Outward Consignment for the person who sends
the goods for sale and Inward Consignment for the person who receives the goods for sale
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Normal Loss Abnormal Loss
An unavoidable loss, due to inherent features of An avoidable loss, which occurs due to abnormal
the goods. For e.g. evaporation, etc. factors, like fire, theft, etc.
It is treated as a part of cost by inflating the cost Its value is credited to consignment account, in
per unit. order to calculate the normal profit/loss.
No Journal entry is passed for such loss. The following entry is passed: (Refer Entry 12)
Basis of Valuation of Unsold Stock: Unsold Stock is to be valued at cost price or net realizable value,
whichever is lower. Cost means purchase price plus relevant expenses. Net Realizable value means market
price of the goods. (Note: Commission to be deducted in calculation of Net realizable value.)
Accounting Entries:
In the books of Consignor In the books of Consignee
1. When goods are sent on consignment:
Consignment to ______ A/c Dr.
No Entry
To Goods Sent on Consignment A/c
2. Consignor’s Expenses:
Consignment to ______ A/c Dr.
No Entry
To Bank A/c
3. For receiving advance from consignee:
Cash/Bank/Bills Receivable A/c Dr. Consignor A/c Dr
To Consignee A/c To Cash/Bank/Bills Payable A/c
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Invoice Price & Loading
¾Sometimes, the consignor does not want to reveal the cost of goods to the consignee and
therefore invoices goods at a price which is higher than the cost price. Such price is known as
Invoice Price and the difference between Invoice Price & Cost Price is called Loading.
¾When Goods are sent cost plus loading, then some additional entries are required to be passed in
the books of consignor, to eliminate loading.
Situation Entry
1. To Eliminate loading from goods are sent on Goods Sent on Consignment A/c Dr.
consignment: (Refer Entry 1 of previous list) To Consignment to ______ A/c
2. To Eliminate loading from goods returned by Consignment to ______ A/c Dr.
consignee: (Refer Entry 5 of previous list) To Goods Sent on Consignment A/c
3. To Eliminate loading from unsold stock with Consignment to ______ A/c Dr
consignee: (Refer Entry 11 of previous list) To Consignment Stock reserve A/c
Student’s Notes
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