Consignor Sending Consigning Goods to the Consignee

... From Page 5

   
 

The Background

M/s Innova Steels, Tenali has entered into an agreement with M/s Maruthi Traders Vijayawada
"learn,accounting,consignment,consignor,consignee,books"
for sale of goods on consignment basis. We will discuss the aspects agreed upon between them as we get through the transactions.

Practically we do not come across the sentences that we write to represent transactions in the accounting books. What we find is proof of transactions in the form of vouchers, receipts, invoices etc., whose interpretation sounds like the sentence that we read. However in the process of learning accounting we use the sentences representing the transactions. These sentences can be used as narrations for the journal entries representing the transactions.

We have given numbers to transactions and we use them to represent the journal entry and the ledger posting.

The Ledger Approach

In learning some topics it would be convenient to think of the ledger to arrive at the journal entry for the transaction. This does not mean that the ledger is prepared first and the journal afterwards. It is only for the purpose of convenience and understanding we do it. Remember, "Every Ledger Posting should have a Journal Support", "No Journal No Ledger", "No Journal No Accounting".

01. June 15th: For the Value of Goods sent of Consignment basis Rs. 2,00,000.

Consignor's Books Hide/Show

Accounts Effected by the Transaction » Identification & Analysis:

  • Vijayawada Consignment a/c » Debit

    Sending the goods on consignment results in expenditure to the extent of the value of goods, being incurred for the consignment. ∴ "Consignment a/c" has to be debited with the value of Goods Consigned.
    [Consignment a/c – Nominal a/c – Debit all expenses and losses]
  • Goods Sent on Consignment a/c » Credit

    Whenever goods are purchased, the value of purchase is debited to "Purchases a/c". At the end of the accounting period,
    "learn,accounting,consignment,consignor,consignee,books"
    the balance in the "Purchases a/c" would be transferred to the "Trading a/c". This results in the value of purchases being charged to the "Trading a/c" i.e. being treated as an expenditure for the trading business.

    The goods are sent by the consignor from his existing stock. Since this amounts to stock which has not been used for the trading business, it has to be eliminated from the "Trading a/c".

    Eliminating an expenditure from the "Trading a/c" implies crediting the "Trading a/c". Crediting the "Trading a/c" is the same as deducting an amount from any item on the debit side of the "Trading a/c" (from "Purchases a/c" here). Deducting from "Purchases a/c" implies crediting "Purchases a/c". [Crediting "Trading a/c" ≡ Crediting "Purchases a/c"]

    Instead of crediting "Purchases a/c" regularly, the value of goods consigned regularly is credited to a new account "Goods Sent on Consignment a/c". This would provide additional information in the form of the value of goods used for consignment business through this account. [The more the information we need, the more the accounting heads we need to maintain.] At the end of the accounting period, the "Goods Sent on Consignment a/c" is closed by transferring the balance to "Trading a/c" or "Purchases a/c".

    The net effect can also be interpreted as a transfer of a Debit Balance from "Trading a/c" or "Purchases a/c" to Consignment a/c. [Ttransferring a debit balance from an account to a Second One, results in the second account being debited and the first account being credited]

Recording/Posting

DrVijayawada Consignment a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

15/06/05
 

To GSC a/c (1)
 


 

2,00,000
 




DrGoods Sent on Consignment a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)




15/06/05
 

By Vij. Con. a/c (1)
 


 

2,00,000
 

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 15th Dr
2,00,000
2,00,000

Consignees Books Hide/Show

The ownership of the goods is with the consignor. The consignee is no way connected to the ownership of the goods. The consignee therefore will not record the value of goods in his books of accounts.

There is no entry for this in the books of the consignee

This does not mean that the consignee will have no record whatsoever of the goods. He does not take into his account books, but may be maintaining a stock record for the goods received and sold.

Author Credit : The Edifier ... Continued Page 7

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