Expenses on Consignment Paid by the Consignee

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"learn,accounting,consignment,consignor,consignee,books"

The classification of the expenses as direct and indirect has a relevance only at the time of valuing closing stock in consignment. It has no relevance with regard to recording the consignment transactions relating to expenses. Whether direct or indirect an expenditure is an expenditure. Detailed explanation about direct and indirect expenditure here

Expenses paid at the place of the Consignee

M/s Maruthi Traders, Vijayawada may be required to spend some amount on expenses in relation to consignment. These expenses may be direct expenses or indirect expenses. Direct expenses like Octroi duties, unloading charges etc and indirect expenses like godown rent, insurance for storage, delivery charges etc.

These expenses may be paid in cash, through a cheque or may be outstanding.

03. June 16th: For the direct expenses incurred by the consignee and
      (a) paid in cash Rs. 2,400
      (b) outstanding Rs. 2,600.

04. June 17th: For the indirect expenses incurred by the consignee and paid by cheque Rs. 4,500.

Consignor's Books Hide/Show

Accounts Effected by the Transaction » Identification & Analysis:

  • Debit » Vijayawada Consignment a/c

    The expenses incurred for consignment would have to be debited to "Consignment a/c" as it is the only nominal account being maintained to record consignment expenses.
    [Consignment a/c – Nominal a/c – Debit all expenses and losses]
  • Credit »

    • 3(a), 3(b), 4: M/s Maruthi Traders a/c

      Since the consignee has paid or has taken the responsibility for the payment of these expenses, he has to be reimbursed these amounts. Therefore the consignee stands in the position of a creditor for these amounts and hence his account is to be credited. This will be the case whether the expenditure has been paid for in cash, or by cheque or is still outstanding.
      [Consignee a/c – Personal a/c – Credit the benefit giver]

    The effect of the transactions can be summarised as
    3(a) : (i) Vijayawada Consignment a/c and (ii) M/s Maruthi Traders a/c
    3(b) : (i) Vijayawada Consignment a/c and (ii) M/s Maruthi Traders a/c
      4   : (i) Vijayawada Consignment a/c and (ii) M/s Maruthi Traders a/c

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

    16/06/05
    16/06/05
    17/06/05
     

    To M/s M T a/c (3a)
    To M/s M T a/c (3b)
    To M/s M T a/c (3c)
     




     

    2,400
    2,600
    4,500
     




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




    16/06/05
    16/06/05
    17/06/05

    By Vij. Con a/c (3a)
    By Vij. Con a/c (3b)
    By Vij. Con a/c (3c)
     




     

    2,400
    2,600
    4,500
     

    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 16th Dr
    2,400
    2,400
    June 16th Dr
    2,600
    2,600
    June 17th Dr
    4,500
    4,500

Consignees Books Hide/Show

Accounts Effected by the Transaction » Identification & Analysis:

  • Debit » M/s Innova Steels a/c

    The expenses incurred by the consignee are on behalf of the consignor. Therefore the consignor becomes due to the consignee for all these amounts. A person who owes us money is a debtor. Therefore the "Consignors a/c" has to be debited for all these amounts receivable from him.
    [Consignor a/c ⇒ Personal a/c ⇒ Debit the benefit receiver]
  • Credit »

    • 3(a): Cash a/c

      When the expenses are being paid in cash, "Cash a/c" is credited since cash is going out.
      [Cash a/c – Real a/c – Credit what goes out.]
    • 3(b): Bank a/c

      When the expenses are being paid by cheque, "Bank a/c" is credited since the bank gives the benefit here.
      [Bank a/c – Personal a/c – Credit the benefit giver.]
    • 4: Outstanding Expenses a/c

      When the expenses are still to be paid (outstanding), "Outstanding Expenses a/c" is credited.
      [Outstanding Expenses a/c – Personal a/c – Credit the benefit giver.]
      "learn,accounting,consignment,consignor,consignee,books"

      "Outstanding Expenses a/c" represent the amount that is to be paid on account of expenses unpaid. It is an equivalent of a liability. Since we could manage the expenditure without paying it, the person to whom the amount is outstanding stands in the position of the benefit giver. Though this also represents money owed to outsiders, we refrain from calling this creditors as creditors generally would mean persons/organisations to whom we owe on account of credit purchases.
      [Any nominal account prefixed or suffixed by the terms Outstanding, prepaid, still payable, still receivable etc., is a personal account and not a nominal account]

The effect of the transactions can be summarised as
3(a) : (i) M/s Innova Steels a/c and (ii) Cash a/c
3(b) : (i) M/s Innova Steels a/c and (ii) Bank a/c
  4   : (i) M/s Innova Steels a/c and (ii) Outstanding Expenses a/c

Remember that even in the books of the consignee, the Cash a/c, Bank a/c and the Outstanding Expenses a/c being used are regular accounts which already exist in the accounting books and they need not be created again for the purpose of consignment.

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

16/06/05
16/06/05
17/06/05
 

To Cash a/c (3a)
To Out. Exp. a/c (3b)
To Bank a/c (3c)
 




 

2,400
2,600
4,500
 




We avoid showing the postings in the regular accounts [Cash a/c, Bank a/c, Outstanding Expenses a/c] as they are not asked to be prepared generally in examination conditions. The reason being the information in those accounts would be only partly relevant to consignment. To draw up the complete account you may need other information unrelated to consignments.

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 16th Dr
2,400
2,400
June 16th Dr
2,600
2,600
June 17th Dr
4,500
4,500

Author Credit : The Edifier ... Continued Page 9

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