The consignor may incur expenses in relation to consignment which might be paid in cash or by cheque or are might still be outstanding.

Example

Expenses incurred on consignment

1. loading charges paid in cash 1,240
2. transportation charges paid by cheque 3,000 and
3. toll charges unpaid 560

Dr/Cr - Transaction analysis

• Debit - Consignment a/c

  Nominal
  ↓
  Debit
  {all expenses & losses}

  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 on consignment are debited to the Consignment a/c.

• Credit -

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

  • Cash a/c

    Real
    ↓
    Credit
    {what goes out}

    Cash goes out as payment for expenses.

  • Bank a/c

    Personal
    ↓
    Credit
    {the benefit giver}

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

  • Outstanding Expenses a/c

    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

   Consignment a/c To Cash a/c	Dr	1,240	1,240
   [For the loading charges paid in cash]

2. Expenses paid by cheque

   Consignment a/c To Bank a/c	Dr	3,000	3,000
   [For the transportation charges paid by cheque]

3. Expenses incurred and outstanding

   Consignment a/c To Outstanding Expenses a/c	Dr	560	560
   [For the toll charges payable to the transporters]

Ledger

Note

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.

The ownership of the goods is with the consignor. He takes all the risks and returns on consignment

This transaction, expenditure incurred by the consignor, does not result in an expenditure or loss to the consignee. It does not affect the consignee in value terms.

Thus, the consignee does not record this transaction in his books of accounts.