Advance sent to the Consignor by the consignee

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Amounts Sent in all Cases

The explanations given here would be relevant
"learn,accounting,consignment,consignor,consignee,books"
for the amounts sent by the consignee to the consignor either as an advance or at any other point of time.

Why Advance?

The nature of consignment business does not need the consignee to invest for the business. Giving advance amounts to the consignee investing a certain amount before selling the goods. Why should the consignee invest?

The consignee is also a beneficiery of the consignment business in the form of commission he earns for the sales he makes on consignment business. He would be willing to pay some advance and thereby invest for the business if he is confident of selling the goods being sent by the consignor. Moreover, the consignor also would need cash to carry on his business operations. This advance may be sent by the consignee in the form of liquid cash or cheque. Alternatively the Consignee may accept a bill drawn by the consignor so that the consignor would be able to discount it and provide for funds for his business.

The various modes in which the Consignee can ensure transfer of funds from him to the consignor are

  • Paying Cash

  • Paying by Cheque

  • Accepting a Bill Receivable Drawn by the Consignor

    Accepting a Bill (Bill Payable to the Consignee and Bill Receivable to the Consignor)
  • Endorsing a Bill Receivable with him to the Consignor

    "learn,accounting,consignment,consignor,consignee,books"
    In some cases the consignee may also endorse the bill received by him from some other party to the consignor. The Consignee is called the endorser and the Consignor the Endorsee.
    [Bill Receivable with the Consignee gets liquidated and the Consignor receives a Bill Receivable]

    In both the cases of a B/R being accepted by the consignee and a B/R in his possession being endorsed by him, the consignor would get a B/R. The acceptor in the first instance being the consignee himself and in the second instance being some one else.

  • Accepting a Bill Payable or any other liability of the Consignor

    Accepting a Bill Payable or any other liability of the Consignor (Bill Payable getting created to the Consignee and Bill Payable getting liquidated to the Consignor)

05. June 17th: For the advance sent to the consignor by the consignee
      (a) in cash Rs. 2,000
      (b) by Cheque/Demand Draft Rs. 10,000.
06. June 18th: For the Bill drawn by the consignor accepted by the consignee Rs. 8,000.
07. June 19th: For the Bill (receivable by the consignee) endorsed to the consignor Rs. 5,000.
08. June 19th: For the Bill Payable (by the consignor) taken over for payment by the consignee Rs. 3,000.

Consignor's Books Hide/Show

Accounts Effected by the Transaction » Identification & Analysis:

  • Credit »

    • 05 (a), (b), (06), (07): M/s Maruthi Traders a/c

      In all these transactions the consignee account is credited since he gives the benefit to the consignor.
      [Consignee a/c – Personal a/c – Credit the benefit giver]
    • 08: M/s Maruthi Traders a/c

      The consignee taking up the liability amounts to his giving the benefit. Therefore the consignee a/c is to be credited.
      [Consignee a/c – Personal a/c – Credit the benefit giver]
  • Debit »

    • 05 (a): Cash a/c

      Since cash is being received "Cash a/c" is debited
      [Cash a/c – Real a/c – Debit what comes in]
    • 05 (b): Bank a/c

      Since the money is getting into the bank account "Bank" is to be debited (Bank a/c is benefiting by receiving cash)
      [Bank a/c – Personal a/c – Debit the benefit receiver]
    • 06, 07: Bills Receivable a/c

      When the Bill is accepted by the consignee and also when the consignee endorses and transfers the bill receivable with him to the consignor, the consignor would receive a Bill Receivable. In the first bill the consignor being the drawer and in the second bill the consignor being the endorsee.

      Since the Bill receivable is getting in "Bills Receivable a/c" is debited
      [Bills Receivable a/c – Real a/c – Debit what comes in]

    • 08: Bills Payable a/c

      When the Bill Payable with the consignor which is a liability is accepted to be taken over by the consignee, it amounts to a liability in the name of "Bills Payable a/c" getting liquidated. Since the liability gets liquidated, its account is to be written off by debiting it.
      Since the liability Bills Payable is being liquidates "Bills Payable a/c" is debited. The Bill Payable a/c being the benefit receiver here.
      [Bills Payable a/c – Personal a/c – Debit the benefit receiver]

The effect of the transactions can be summarised as
5(a) : (i) Cash a/c and (ii) M/s Maruthi Traders a/c
5(b) : (i) Bank a/c and (ii) M/s Maruthi Traders a/c
  6   : (i) Bills Receivable a/c and (ii) M/s Maruthi Traders a/c
  7   : (i) Bills Receivable a/c and (ii) M/s Maruthi Traders a/c
  8   : (i) Bills Payable a/c and (ii) M/s Maruthi Traders a/c

DrM/s Maruthi Traders a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)




17/06/05
17/06/05
18/06/05
19/06/05
19/06/05
 

By Cash (5a)
By Bank a/c (5b)
By B/R a/c (6)
By B/R a/c (7)
By B/P a/c (8)
 






 

2,000
10,000
8,000
5,000
3,000
 

Journal in the books of M/s __ for the period from ____ to _____
Date V/R
No.
L/F Debit Amount
(in Rs)
Credit Amount
(in Rs)
June 17th Dr
2,000
2,000
June 17th Dr
10,000
10,000
June 18th Dr
8,000
8,000
June 19th Dr
5,000
5,000
June 19th Dr
3,000
3,000

Consignees Books Hide/Show

Accounts Effected by the Transaction » Identification & Analysis:

  • Debit »

    • 05 (a), (b), (06), (07), (08): M/s Innova Steels a/c

      In all these transactions the consignor is the benefit receiver. Therefore his account is Debited.
      [Consignor a/c – Personal a/c – Debit the benefit receiver]
  • Credit »

    • 05 (a): Cash a/c

      Since cash is being paid "Cash a/c" is credited
      [Cash a/c – Real a/c – Credit what goes out]
    • 05 (b): Bank a/c

      Since the money is going out of the bank account "Bank" is to be credited (Bank a/c is giving the benefit by paying)
      [Bank a/c – Personal a/c – Credit the benefit giver]
    • 06: Bills Payable a/c

      When the Bill drawn by the consignor is accepted by the consignee, he would be accepting a liability i.e creating a liability in the name of Bill Payable. The benefit received by the consignor is given by the Bill Payable a/c here.
      [Bills Payable a/c – Personal a/c – Credit the benefit giver]
    • 07: Bills Receivable a/c

      When the consignee endorses and transfers the bill receivable with him to the consignor, the consignee would be sending the Bill Receivable with him outside. In this bill the consignee will be in the position of an endorser.
      [Bills Receivable a/c – Real a/c – Credit what goes out]
    • 08: Bills Payable a/c

      When the Bill Payable with the consignor which is a liability is accepted to be taken over by the consignee, it amounts to an extra liability in the name of "Bills Payable" being taken over by the consignee. The Bills Payable a/c is giving the benefit that the consignor is receiving here.
      [Bills Payable a/c – Personal a/c – Credit the benefit giver]

The effect of the transactions can be summarised as
5(a) : (i) M/s Innova Steels a/c and (ii) Cash a/c
5(b) : (i) M/s Innova Steels a/cand (ii) Bank a/c
  6   : (i) M/s Innova Steels a/c and (ii) Bills Payable a/c
  7   : (i) M/s Innova Steels a/c and (ii) Bills Receivable a/c
  8   : (i) M/s Innova Steels a/c and (ii) Bills Payable a/c

DrM/s Innova Steels a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

17/06/05
17/06/05
18/06/05
19/06/05
19/06/05
 

To Cash (5a)
To Bank a/c (5b)
To B/P a/c (6)
To B/R a/c (7)
To B/P a/c (8)
 






 

2,000
10,000
8,000
5,000
3,000
 




Journal in the books of M/s __ for the period from ____ to _____
Date V/R
No.
L/F Debit Amount
(in Rs)
Credit Amount
(in Rs)
June 17th Dr
2,000
2,000
June 17th Dr
10,000
10,000
June 18th Dr
8,000
8,000
June 19th Dr
5,000
5,000
June 19th Dr
3,000
3,000

Author Credit : The Edifier ... Continued Page 10

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