Expenses on consignment paid by the Consignee

Transaction

The consignee may incur expenses like Octroi duties, unloading charges, godown rent, insurance for storage, delivery charges etc., in relation to consignment. These expenses may have been paid in cash or by cheque or might be still unpaid.

Example

Expenses incurred by the consignee on consignment

  1. Octroi Duty paid in cash 2,400
  2. Unloading Charges outstanding 2,600
  3. paid insurance for storage by cheque 4,500

Consignor Books

Dr/Cr - Transaction analysis

Since all the returns on consignment belong to the consignor, all the expenses and risks are borne by the consignor. If the expenses are paid by the consignee, the consignor would reimburse them.

  • Debit - Consignment a/c

    Nominal

    Debit
    {all expenses & losses}

    Though paid by the consignee, if they are reimbursable, they are expenses for the consignment business.

    All expenses, losses, incomes and gains in relation to consignment have to be transferred(debited) to the Consignment a/c, which is used to derive the information relating to the profits or losses on consignment.

    There is no other ledger account for deriving information relating to expenses on consignment.

    Therefore, expenses paid by the consignee which are to be reimbursed by the consignor, are debited to the Consignment a/c.

  • Credit - Consignee a/c

    Personal

    Credit
    {the benefit giver}

    Since these amount has to be reimbursed to the consignee, the consignee Maruthi Traders a/c would be a creditor and a benefit giver for the amounts.

    The mode of payment of expense would be irrelevant here.

Journal

Consignment a/c
To Consignee a/c
Dr
2,400
2,400
[For the octroi duty paid by and reimbursable to the consignee]
Consignment a/c
To Consignee a/c
Dr
2,600
2,600
[For the unloading charges, reimbursable to the consignee]
Consignment a/c
To Consignee a/c
Dr
4,500
4,500
[For the warehouse insurance paid by and reimbursable to the consignee]

Ledger

Consignment a/c
Dr Cr
Particulars Amount Particulars Amount

To Consignee a/c
To Consignee a/c
To Consignee a/c

2,600
2,400
4,500
Consignee a/c
Dr Cr
Particulars Amount Particulars Amount

By Consignment a/c
By Consignment a/c
By Consignment a/c

2,600
2,400
4,500

Consignee Books

Dr/Cr - Transaction analysis

Since all the risks and returns on consignment belong to the consignor, the expenses on consignment are to be borne by the consignor. If they are paid by the consignee, the consignor would reimburse them.

  • Debit - Consignor a/c

    Personal

    Debit
    {the benefit receiver}

    The expenditure being incurred for the consignment on behalf of the consignor, it is reimbursable by the consignor, who would be the benefit receiver.

    The Consignor a/c represents the consignor who would be the equivalent of a debtor.

  • Credit

    Dependent on whether the expense has been paid for or not and the mode of payment.

    • Cash

      Real

      Credit
      {what goes out}

      Cash goes out as payment for expenses.

    • Bank

      Personal

      Credit
      {the benefit giver}

      Amount goes out from the bank, making Bank the benefit giver.

    • Outstanding Expenses

      Personal

      Credit
      {the benefit giver}

      The person to whom the expense is due, represented by the Outstanding Expenses a/c, would be the benefit giver.

      The Outstanding Expenses a/c is used to derive information relating to the amount that is due on account of unpaid expenses. The balance in that account represents the total amount owed by the organisation to all those represented by that account for unpaid expenses.

      Outstanding Expenses a/c is a personal account. It represents a liability and is an equivalent of a creditor.

      A nominal account prefixed or suffixed by the terms outstanding, prepaid, still payable, still receivable etc., is a personal account representing a liability and is an equivalent of a creditor.

      Note

      Both the Outstanding Expenses a/c and Creditors a/c represent dues to outsiders. However, the nature of due is different. Creditors are on account of credit purchases and Outstanding expense on account of unpaid expenses.

      Where the term Creditors is included in the name of the account representing unpaid expenses, it would be suffixed with additional words to indicate the difference in nature.

      Eg: Creditors for Expenses a/c.

Journal

  1. Expenses paid in cash

    Consignor a/c
    To Cash a/c
    Dr
    2,400
    2,400
    [For the Octroi Duty paid in cash for goods consigned]
  2. Expenses paid by cheque

    Consignor a/c
    To Bank a/c
    Dr
    4,500
    4,500
    [For the warehouse insurace for goods consigned paid by cheque]
  3. Expenses incurred and unpaid

    Consignor a/c
    To Outstanding Expenses a/c
    Dr
    2,600
    2,600
    [For the unloading charges for goods consigned outstanding]

Ledger

Consignor a/c
Dr Cr
Particulars Amount Particulars Amount

To Cash a/c
To Outstanding Expenses a/c
To Bank a/c

2,600
2,400
4,500

Note

Even for the consignee, Cash a/c, Bank a/c, Outstanding Expenses a/c etc., are accounts affected by transactions other than consignment transactions. They are accounts which are common to all kinds of business activities of the organisation.

In problem solving, we ignore presenting these ledger accounts, as the information in those accounts would be only partly relevant to consignment, and to be able to draw up those accounts, we would need other information unrelated to consignments, which may not be available in most cases.