CONSIGNMENT ACCOUNTS

 Consignment means a shipment of goods by a trader or a producer to an Agent for sale on

commission on the sole risk of the sender.
 In consignment there are two parties namely
i. Sender
ii. Receiver

 The sender is known as “Consignor” and the receiver is known as the “Consignee”. The
Consignor may be a manufacturer or a wholesaler.

 The consignment transaction may take place within the country or outside the country. The
relationship between the Consignor and Consignee is that of an Agent and a Principal.

 When a Consignor sends to a Consignee, it is called Consignment Outwards. For the Agent
or the Consignee, it is call Consignment Inwards.

Features:
i. The Consignor sends goods to the Consignee for the purpose of sale at a profit.
ii. The relationship between the Consignor and the Consignee is that of Agent and Principal.
iii. The Consignor can ask for the sale for the sale proceeds from the Consignee only when
the goods are sold.
iv. The Consignee is entitled to be reimbursed for all the expenses incurred by him for the
consignment.
v. He is entitled to receive the agreed amount of commission on sales.
vi. The Consignee is not responsible for any loss or destruction of the goods of the
Consignor as he is not the real owner of the goods.
vii. Goods remaining unsold with the Consignee on any date belong to the Consignor.
viii. Profit or loss on sales of consignment belongs to the Consignor only.

The term ‘’sale’’ and consignment are to be differentiated.

The differences are:
1) Ownership
- In ‘’sale’’ ownership and possession are transferred to the buyer.
- In consignment only possession is transferred to the Consignee and not the ownership.
2) Parties
- Parties in sale are called Buyers and Seller.
- Parties to consignment are called Consignor and Consignee.
3) Relationship
- In ‘’sale’’ the relationship between parties is that of Buyer and Seller and it terminates once
the sale is affected.
- In consignment the relationship is that of Principal and Agent.
4) Loss
- In sale the Buyer will suffer loss after sale. The Seller will suffer loss only if the goods
remain in possession of the Seller. In consignment only the Consignor is responsible for loss.

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 5) Return Of Goods
- Consignee can return stock to the consignor in case he cannot sell the goods or can sell it at a
reasonable Loss. But in sale there is no such return of goods.

ACCOUNT SALES
- A consignee sends to the consignor periodically specifying the details repaying goods sold
and expenses incurred in sale the buyer need not submit any account sales to the seller.

In consignment there are some important terms that are to be discussed.

These are:
i. Proforma Invoice
ii. Commission
iii. Advance on consignment
iv. Account sales

1) Proforma Invoice
- The Proforma Invoice is sent by the consignor to consignee when the goods are consigned.
- The contents of this are:
(i) Nature of goods
(ii) Number /quantity
(iii) Weight
(iv) Measurement
(v) Price
(vi) Making
(vii) Packing e.t.c.

- The price given in such Invoice is not the cost price. It may be either selling price plus an
arbitrary percentage.

- The objects of inflating the price are:

(a) Not to disclose the cost price to the consignee and profit earned by the consignor
(b) In case the goods are lost by the consignee in transit.
Consignor loses not only the cost of goods but also profit which he would have
earned by sales. Further in case of making a claim with the t…………… to
maybe good his loss on consignment.

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2) Commission
- This is the reward to the consignee is getting for sales effected. This is normally fixed as a
percentage on sales.
- There may be valuations in the payment of commission. They are:
i. Del credere Commission
ii. Ovel-riding Commission

a) Del Credere Commission

- This commission is given as an extra one when the consignee undertakes to collect debtors
without any bad debts.
- The Del credere commission is given in addition to the normal commission. This is given on
credit sales made by the consignee.
- The granting of the commission is determined by the terms and conditions between the
consignor and consignee.

b) Ovel-riding commission

This is sent by the consignee to the consignor. He sends this statement either on sale of the
goods or at end of a particular period.

- This statement is called Account Sales

- In Account Sales the details given are:
i. Gross proceeds of sales
ii. Loss expenses incurred by the consignee and the commission due to him
iii. Loss any advance paid by the consignee to the consignor.
iv. Not amount payable to the consignor and payment made.

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FORMAT OF ACCOUNT SALES
ACCOUNT SALES
Amount
Particulars: K K
Sale proceeds of
300 cases © k200 each 60,000
100 cases © k190 each 19,000
79,000
Less: unloading Expenses 500
Selling expenses 800
Commission ©7% 5,530
(6,830)
72,170
Less advance paid (20,000)
Balance due- settled by Bank draft 52,170

The consignor makes entries in his books of account after receiving account sales.

Accounting Treatment
In the books of consignor, the accounts to the opened are:
i. Consignment Account – Nature Nominal Account
ii. Consignee’s Account – Personal Account
iii. Goods sent on consignment Account

a) Consignment Account – Nature Nominal Account

- It is prepared to find out the profit or loss earned or incurred by the consignment.
- This account is opened for each and every consignment. This serves the purpose of Profit and
Loss Account.

b) Consignee’s Account
- This is a personal account in nature and prepared to find out the money due from the
consignee at a particular point of time

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c) Goods sent on consignment account

- It is prepared to find out the amount to be adjusted against purchase or goods manufactured.
Journal Entries In the Books of Consignor

Dr Cr
Consignment A/c xxx
1 Goods sent on consignment A/c xxx
Being entry for goods sent on
consignment
2 Cash/Bank/ Bills receivable A/c xxx
Consignee’s A/c xxx
Being received cash or bill as advance
for the consignee
3 Consignment A/c xxx
Bank xxx
Being entry for consignor incurred
expenses
4 Consignment A/c xxx
Consignee A/c xxx
Being entry for consignee incurring
expenses
5 Consignment A/c xx
Consignee’s A/c xxx
Being entry for commission due to
consignee

NOTE:
For consignee incurring expenses for consignment and commission due to the consignee, entry is
the same

6 Dr Cr
Consignee’s A/c xxx
Consignment A/c xxx
Being entry for sales effected by the
consignee.
7 Consignment A/c xxx
Consignee’s A/c xxx
Being received for recording bad debts in
the absence of del credere (Commission)
8 Stock on consignment A/c xxx
Consignment A/c xxx
Being entry for recording the unsold stock
with the consignee.
9 Consignment A/c xxx
Consignment Profit and Loss A/c xxx
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 Being entry for recording profit on
consignment

Note: In Case of Loss the entry is to be reversed

DR CR
Bank A/c bills receivable xxx
10 Consignment A/c xxx
Being entry for final settlement in cash or bill receivable for the
consignee
11 Goods sent on consignment A/c xxx
Purchase A/c xxx
Being entry for closing goods sent on consignment A/c

CONSIGNMENT ACCOUNT
DR CR
Goods sent on consignor xxx Consignees’ A/c xxx
Bank xxx Stock on consignment A/c xxx
Consignee A/c xxx
Consignee’s A/c xxx
Consignee’s A/c xxx
General Profit and Loss xxx

GOODS SENT ON CONSIGNMENT

Consignment A/c xxx Consignment A/c xxx
Purchase A/c (Trade Transfer) xxx

CONSIGNEE’S A/C
Cash/Bank/Bills receivable xxx Consignment A/c xxx
Consignment A/c xxx Consignment A/c xxx
Consignment A/c xxx

CASH/BANK/BILLS RECEIVABLE
Consignment A/c xxx
Consignment A/c xxx

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 STOCK ON CONSIGNMENT A/C

Consignment A/c xxx

GENERAL PROFIT AND LOSS ALC

Consignment A/c xxx

Bank a/c xxx

Consignment debtors xxx
Being collecting cash for debts
Consignor’s a/c xxx
Commission a/c xxx
Being entry for commission due for consignor
Consignor’ s a/c xxx
Bank/bill receivable xxx
Being entry for final settlement
Commission a/c xxx
Profit and loss xxx
Being transfer entry for commission

In case of the consignee is allowed del-credere commission the follow additional treatment is
needed:
1. To record bad debts
2. To transfer bad debts to commission
3. Transferring commission as usual to profit and loss a/c

Bad debts a/c xxx

Consignment debtors a/c xxx
Being bad debt
Commission a/c xxx
Bad debts xxx
Being adjusting bad debts
Commission a/c xxx
Profit and loss a/c xxx
Transferring commission

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In the books of the consignee
The accounts to be prepared
1. Consignor’s account – personal A/c
Objective: To find out the amount to be paid to consignor as final settlement
2. Commission account – nominal a/c
Objective: to know the amount of commission earned.
JOURNAL ENTRIES TO BE PASSED ARE:
1. Consignor’s a/c xxx
Bank/bills payable a/c xxx
Being for sending advance to the consignor either in
cash or bills accepted
2. Consignor a/a xxx
Bank a/c xxx
Being entry for incurred expenses
3. Cash/bank xxx
Consignment a/c xxx
Being entry for recording cash sales
4. Consignment debtor a/c xxx
Consignor’s a/c xxx
Being entry for credit sales effected.

INVOICE PRICE METHOD

The consignor may prefer to send the goods to the consignee at a higher price than the cost price
and prepares the proforma invoice by adding some profit on cost or on sale.
- The goods are charged to the consignee not at cash but at high price. The object or such
presentation is:
1. To keep the profit on consignment seller
2. To give incentive to the consignee to realise the highest possible price and
3. To make him charge a uniform price
Accounting treatment
By the invoice price method two items in consignment account, one on the debit side and
the other on the credit side are inflated.
The inflation is to be neutralised by recording the load (invoice price – cost price) on the
opposite side. This is done with the object of arriving at the correct profit.
The item on the debit side is goods sent on consignment. This is posted on the debit side
of consignment account at invoice price. The load is received by posting it on the credit
side.

JOURNAL ENTRY
Goods sent on consignment a/c xxx
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 Consignment a/c xxx
Being entry for recording the difference between the invoice
price and cost price

The next item on which load is to be removed is the unsold stock with the consignee.
This is to be posted to the consignment account credit side of invoice price and before
calculating profit the load is to ascertained and recorded on the debit side of consignment
account as stock receive.
Calculation
Unsold stock at invoice price- unsold stock at cost piece = stock receive
Treatment
The stock receive is posted on the debit side of consignment account
Journal entry
Consignment a/c xxx
Stock receive xxx
Being entry for off settling the load on unsold stock

- The student is asked to be careful in c calculating the load because the data given in the
problem may not direct in all cases.

QUESTION
On 1st January, 2000, the T.I Cycles of Chennai consigned 200 cycles to Mr Chandra Babu of
Hyderabad.
- The cost of each cycle is K800. They were charged at Proforma Invoice Price to show a
profit of 25% on cost. On the same date the consignor paid K4000 as freight and insurance.
- On 30th December, 2000, the consignee sent a bank draft for k100, 000 as advance. On the
same date consignee sent an account sales informing that 180 cycles were sold for K1,200
each.
The expenses of the consignee K1000
a. Unloading charges K1000
b. Cycle fitting charge K2000
c. Godown rent K4200
With the account sales the consignee remitted the balance due after deducting his commission of
5% on gross sales.
Prepare necessary ledger accounts in the books of both the parties.

CONSIGNMENT TO HYBERABAD A/C

IN THE BOOKS OF T.I CYCLES
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 (CONSIGNOR)
K K
Goods sent on consignment 200,000 Consignee (Chandra Babu) 216,000
(200x1000) ie 800x25% = 1000 (180 x 1,200)

Bank a/c (expenses) 4,000 Goods sent on consignment 40,000

(Loading on goods sent)
Bank (consignee) expenses
Bank (consignee) 216,000 x 5% 10,800 Stock on consignment a/c 20,700
Stock receive 4,000
Profit and loss a/c 50,700
276,700 276,700

CHANDRA BABU’S A/C

K K
Consignment a/c 216,000 Bank 100,000
Consignment (expenses) 7200
Consignment (commission) 10,800
bank 98,000

216,000 216,000

GOODS SENT ON CONSIGNMENT

K K
Consignment to Hyderabad 40,000 consignment 200,000
Transfer a/c 160,000
200,000 200,000

Stock on consignment
K K
Consignment to hyderabad 20,700 Stock receive 4000
Balance 16,700
20,700 20,700

Stock receive a/c

K K
Stock on consignment 4,000 consignment 4,000
4,000 4,000

Working Notes:
1. Calculation of invoice price
Cost price 800
Add 25% on cost 200
1,000
Total value 200 units x 1000 = K200,000
2. Calculation of loan 200 units x K200 = K40,000
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 3. Loading on unsold stock 20 x K200 = 4000
4. Valuation of closing stock
Cost of 20 cycles at invoice price 20x1000 = 20,000
Add: © proportion expenses of consignment 4000 x 20/200 = 400
b. proportion direct expenses of consignment 3000 x 20/200 = 300
Value of unsold stock 20, 700

In the books of Chandra babu

T.I CYCLES A/C
Dr Cr
(K) (K)
Bank a/c 7,200 bank 216,000
Commission 10,800
Bank 100,000
Bank 98,000
216,000 216,000

COMMISSION
K K
Profit and loss 10, 800 Chandra Babu 10, 800
10, 800 10, 800

JOINT VENTURE
Joint venture is particular partnership. In joint venture two individual traders join together for
completing a particular venture.
This arises due to constraints of available time, resources, expertise to execute a job as an
individual. The parties to a joint venture are known as co-ventures.
Examples:
a. Two contractors join together for the construction at of the building, dam, e.t.c
b. Two financial institutions join together for underwriting shares and securities.
c. Two vegetable vendors join together for the supply of vegetables to a college, hostel, a
hotel or central prison

The Features of Joint Venture

i. An agreement between two or more persons.
ii. The object is executive of a specific work
iii. The ventures share profits or losses in an agreed ratio. In the absence of any agreement,
it is assumed to be equal.
iv. The venture comes to an end as soon as the venture is completed.
v. The ventures may continue to do any type of business of their own during course of
venture.
vi. No specific name is necessary for joint venture business

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 PARTNERSHIP AND JOINT VENTURE A COMPANION
The similarity between the two are:
a. There is an agreement or understanding to carry on the business
b. The object is to complete a venture
c. They decide to share profits and losses in an agreed ration or equal ratio.

The difference between the two are:

i. SCOPE
- The scope of partnership is wider as it is a continuous profit – seeking enterprise. Joint venture
has a limited scope as its profit seeking is terminate on completion of the venture.
1. COMMON NAME
- Partnership is carried under firms name but joint venture has no common name.
2. NAMES OF PARTIES
- Parties involved in partnership are called partners while parties involved in joint venture are
called co-ventures
3. PREPARATION OF ACCOUNTS
- In partnership accounts are prepared for an accounting year to know profit or loss earned. In joint
venture accounts are prepared to know the profit or loss. In case the venture continues for more
than one year interim accounts can be prepared.
4. Partnership is governed by partnership Act, but there is no such law for joint ventures.
5. Freedom to run competitive business
Co-ventures have freedom to run competitive business independently of the venture but in
partnership they cannot have such unrestricted freedom.
6. Minor
In partnership minor be admitted to the benefits of partnership. In joint ventures they cannot
be admitted.
Difference between consignment and joint venture
Consignment
- A producer or a wholesaler can send goods to his agent for selling them on his behalf. This
maybe within the country or outside the country.
- There are two parties:
(i) Consignor – who sends the goods
(ii) Consignee – who sells the goods for a commission and at the risk or consignor.

A joint venture is a partnership the use of a firm name. it is a particular partnership. Parties to a
joint venture are called co-ventures.

The difference between the two are:

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 1. Remuneration
The commission is given to the consignee for sales effected in consignment. The co-
ventures who sells the goods gets a commission plus a share in the profit of the venture.
2. Parties
In consignment the parties are known as consignor and consignee. In joint venture the
parties are known as co-ventures.
3. Relationship
In consignment relationship between consignor and consignee is that of agent and
principal
In joint venture the relationship between co-ventures are like partners in partnership.
4. Duration
The duration of consignment is more compared to joint venture, as consignment
continues for a long duration but joint venture end up with completion of the venture
5. Capital
In joint venture all co-ventures invest capital. In consignment only consignor invests
capital.
6. Ownership
Ownership is in the hands of all ventures in joint venture and ownership in consignment
is in the hands of consignor alone
7. Accounts recording
The accounting are maintained by one method in consignment but in joint venture for
recording accounts more than one method is used.
Accounting for joint venture

The basic objectives for the accounting of joint venture for the stand point of co-ventures and
other interested parties are;
a. To know the profit or loss earned by the venture
b. Settlement of accounts between co-ventures.
- To achieve these objectives the co-ventures keep their books of accounts that will suit them.
There are two ways to maintaining books of accounts
They are;
1. When separate set of books is kept for the joint venture
2. When no separate set of books is kept for the venture.
A separate set of books is kept
This method is adopted in the following cases:
a. Size of the venture is large
b. Duration of the venture is protracted
- In this case a complete double entry system is used forth, purpose as is the case for any other
business.
- In this case the accounts to be maintained are,
1. Joint venture account
2. Joint bank account
3. Co-ventures account
(i) This is in nature of trading, Profit and Loss account.
- The object of its preparation is to achieve at profit/ loss earned by the venture.
- On the debit side the details recorded are purchases goods supplied by co-ventures expenses
incurred for the venture both for sales and purchases.

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- On the credit side the transactions recorded are sale proceeds and stock taken over by the
ventures.
- The difference between the two sides represent profit/loss. Credit side more profit results and
debit side more loss is incurred.
- In any case the profit/ loss are transferred to co-ventures accounts in the agreed ratio or
equally when the ratio is not specified.
3. Joint bank account
- This account is opened for better financial control of the venture. This is a real account in
nature. Debit side records all incoming of cash and credit side records all outgoing of cash.
- At time of termination of the venture this account is closed by transferring it to the co-
ventures account either they introduce cash or withdraw cash. There is no closing balance of
cash as the venture is getting closed. Both the sides are to be equal. This is the litmus test for
accuracy of your answers.
4. Co-ventures account
- This is nothing but the capital account of the ventures. This is in the nature of personal
account. On the credit side what is contributed by them is recorded and debit side records
withdraws by the co-ventures.
- The profit from joint venture is credited and loss from joint venture is debited.
- Both sides of this account are compared to find out the cash introduced or withdrawn as the
case may be.
THE SPECIMEN JOURNAL ENTRIES ARE:
DR CR
1. Joint Bank A/c xxx
Co-ventures A/c xxx
For cash contributed by co-ventures)
2. Joint venture A/c xxx
Joint Bank A/c xxx
For purchase of goods for joint venture
3. Joint venture A/c xxx
Suppliers A/C / Creditors A/c xxx
Purchasing of goods a credit for to venue
4. Joint venture A/c xxx
Co-venture xxx
Stock/ material supplied by co-venture
5. Joint venture A/c xxx
Joint Bank A/c xxx
For expenses incurred on are of joint venture
6. Joint Bank A/c xxx
Co-ventures A/c xxx
For co-venture incurred expenses for joint venture

7. Joint Bank A/c xxx

Joint venture A/c xxx
Selling goods for cash

8. Co-venture’s a/c xxx

Joint venture a/c xxx

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 Entry for one of the co-venture who kept the sale
proceeds of the venture
9. Debtors xxx
Joint ventures a/c xxx
Selling goods on credit for the ventures
10. Co-ventures a/c xxx
Joint venture a/c xxx
Entry for goods taken only by co-venture
11. Joint bank a/c xxx
Debtors a/c xxx
Collection of money from sundry debtors
12. Joint venture a/c xxx
Sundry debtors xxx
Entry for recording bad debts
13. Creditor/ supplies a/c xxx
Joint bank a/c xxx
Payment made to supplies/ creditors
14. Joint venture a/c xxx
Co-venture xxx
Commission payable to co-ventures

If credit side of joint venture is greater than the debit side, it represents profit.
DR CR
a. Joint venture a/c xxx
Co-venture a/c xxx
Entry for transferring profit and joint venture
b. Joint bank a/c xxx
Co-venture a/c xxx
Entry for transferring loss on account of joint venture
c. Joint bank a/c xxx
Co-venture a/c xxx
Entry for co-venture introduced cash on termination of venture
d. Co-venture a/c xxx
Joint bank a/c xxx
Entry for co-venture withdraw cash on completion of venture

QUESTION 1
Mano and Mohan entered into joint venture and agreed to share profit and loss in ration of 2:3
They opened a Joint Bank A/c by depositing K8, 000 and 10,000 respectively.
They purchased 10 condemned television sets at k1500 each. They paid expenses out of joint
bank A/c for reconditioning the sets to the extent of K3, 000.
Mohan incurred carriage and other expenses to the extent of K2, 000. Mohan received a cheque
for K1, 000 from Mano. Nine sets were sold a K2, 500 each and rest were taken over by Mohan
at cost.
Pass necessary Journal entries and prepare necessary Ledger Accounts.

SOLUTION
JOURNAL ENTRIES
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DATE PARTICULARS DR CR
1 Joint Bank A/c 18,000
Mono 8, 000
Mohan 10,000
Entry for co-ventures contributing capital
2 Joint venture a/c 15,000
Joint bank a/c 15,000
Being the entry for the purchase of 10 condemned
Television sets at k1,500 each
3 Joint venture 3,000
Joint bank a/c 3,000
Entry for meeting reconditioning expenses
4 Joint Venture a/c 2,000
Mohan’s A/c 2,000
Entry for Mohan meeting the joint venture expenses
5 Mohan’s a/c 1,000
Mano a/c 1,000
By the entry for paying Mohan by cheque
6 Joint bank a/c 22,500
Mano a/c 22,500
The entry for the sale of a Television sets at
K2,5000 each
7 Mohan’s a/c 2,000
Joint venture a/c 2,000
Entry for Mohan for …………over the television
8 Joint venture a/c 4,500
Mono a/c 1,800
Mohan a/c 2,700
Entry for transferring profit on joint venture
9 Mono a/c 10,800
Mohan a/c 11,700
Joint Bank a/c 22,500
Entry for find settlement between co-ventures.

JOINT VENTURE
K K
Joint Bank a/c 15,000 Joint Bank a/c 22,500
Joint Bank a/c 3,000 Mano 2,000
Co-venture a/c
. Mano 2,000
Co-venture a/c
. Mano 1,800
. Mohan 2,700
24,500 24,500

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JOINT BANK A/C
K K
Co-Venture A/C Joint venture a/c 15,000
.Mano 8,000 Joint venture a/c 3,000
Mohan 10,000 Mano 10,800
Joint Venture 22,500 Mohan 11,700
40, 500 40, 500

CO- VENTURE
Mano Mohan Mano Mohan
Mano 1,000 Joint Bank a/c 8,000 10,000
Joint venture 2,000 Joint venture 2,000
Joint Bank 11,700 Mohan’s a/c 1,000
10, 800 Joint venture 1, 800 2,700
10, 800 14, 700 10, 800 14,700

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