Accounting treatment in the Books of Consignor

Accounting treatment in the Books of Consignor when Goods Consigned at Invoice Price

The relationship between the consignor and consignee is that of the principal and the agent. Whenever a consignor sends goods to the consignee at a price higher than the cost price, that is known as invoice price method. So entire profit or loss belongs to the consignor and the consignee receives the commission as his remuneration. It is done if the consignor does not want to disclose the real profit to the consignee. It is an inward consignment to the Con­signee. The consignee will not be able to know the cost price if the goods are consigned at the above price. The consignee is not the owner of the goods. Hence, he cannot find out profit or loss being made by the consignor on these goods.

For the goods consigned at invoice price, the entries in the books of both consignor and consignee will be the same. To know the actual profit, at the end of an accounting period, the consignment account will be credited with the excess price so charged. But the following changes and adjustment entries are required in the books of the consignor for eliminating loading charge in goods sent, goods returned, unsold goods and abnormal loss. The value of the stock will also be adjusted to the extent of the profit element.

(1) For goods sent on consignment

• Consignment to……………… A/C……….Dr.(invoice price)
• To goods sent on consignment A/C

(2) For loading, goods sent on consignment

• Goods sent on consignment A/C……..Dr.(loading amount)
• To consignment to……A/C

(3) For abnormal loss

Abnormal loss A/C……………Dr.(invoice price)

To consignment to……..A/C

(4) For loading on abnormal loss

• Consignment to……A/C………….Dr.(loading amount)
• To abnormal loss A/C

(5) For unsold stock

• Consignment stock A/C………….Dr.(invoice price)
• To consignment to……..A/C

(6) For loading on unsold stock

• Consignment to……….A/C…….Dr. (loading amount)
• To consignment stock reserve A/C

(7) For goods return by the consignee

• Goods sent on consignment A/C………….Dr. (invoice price)
• To consignment to…..A/C

(8) For loading on goods returned

• Consignment to………A/C ……..Dr.(loading amount)
• To goods sent on consignment A/C