Cash/Credit Sales made by the consignee
Sale - Price, Nature, Dates
Cash/Credit
The consignee would be selling goods for cash as well as on credit as per the agreement with the consignor.
Sale Price
The price at which sales are to be made by the consignee would be decided by the consignor. The consignor may allow the consignee to vary the selling price based on various considerations like age of the customer, sales quantity, age of stock etc.
Account Sales
The consignee periodically sends a statement called account sales containing the information relating to the activity during like quantity and value of sales made, commissions he is entitled to, collections made from credit sales etc.
This information is utilised by the consignor to account for transactions relating to the consignment taking place at the consignee's end.
Transaction Dates
The consignor would be recording the transactions relevant to sales on the day on which he receives the account sales. Therefore, the date of recording the sale transactions, might be the date of receipt of the account sales. If the account sales contains a break up of the sales by date, it would be possible for the consignor to use those dates while recording the consignment sales.
In problem solving, in most cases, we ignore details relating to transaction dates.
Ledger Accounts representing Consignment Debtors
The number of ledger accounts representing the consignment debtors and the names used for them are dependent on the information needs of the organisation.
Consignor Books
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Deriving maximum possible information
A distinct account for each consignment debtor is maintained.
If the consignment debtors are too many, an account for each group of consignment debtors, grouped based on some criteria like quantity of purchase, type of product purchased, credit period etc., is maintained.
Usefulness
This would be useful where credit sales are made to the same parties regularly by the consignee. This approach would help the consignor to monitor sales and dues collection relating to each consignment debtor individually.
This may not be useful where the buyers do not buy regularly or in substantial quantities, since the consignor would not be the one directly involved in collection of the dues for this information to be helpful.
Care should be taken in naming the ledger accounts so as to ensure identifying such debtors distinctly and not getting them mixed up with the debtors relating to other regular activities.
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Minimise information derived
The consignee account takes the place of all consignment debtors accounts.
The consignor has no direct interaction with the buyers. Where the consignee is being paid del credere commission, the responsibility for uncollected dues or bad debts lies with the consignee. In such circumstances the consignor would not benefit much by maintaining the detailed information relating to consignment debtors.
The consignor would minimise the information relating to consignment sales and dues by treating both credit and cash sales the same way. All sales would be recorded as if they are cash sales and making the consignee the one who is due.
Single entry for Net Effect
The sales data is collected from the account sales which is sent periodically. The consignor may choose to record the sales in a chornological order if the dates of transactions of sales are also available or to combine the various transactions of sale and record them as a single entry.
Where the sales are not being recorded date wise, a single entry for the total amount may be recorded. Even in that case, he may
- Record one entry for cash sales and another entry for credit sales
- Record one entry for all sales
If information is minimised this way, only the aggregate information would be available from the journal and the ledger.
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Conventionally
One account for all consignment debtors is maintained.
Consignee Books
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Deriving maximum possible information
A distinct account for each consignment debtor is maintained.
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Minimise information derived
One account for all consignment debtors is maintained.
Not Useful
Since the consignee is required to collect the dues from the consignment debtors, it would be appropriate for him to maintain distinct consignment debtors accounts as it would help him obtain information relating to collections and amounts outstanding readily with respect to each.
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Conventionally
Since the dues from the consignment debtors are collected at the consignees end, maximum possible information is maintained relating to them in the books of the consignee.
Transaction
The consignee sells goods consigned for cash and/or credit, receiving the sale proceeds in cash as well as by cheque.
Example
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Cash sales made by the consignee and sale proceeds received
- in cash 1,40,000 and
- by cheque 25,000
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Credit Sales made by Consignee
- to M/s SW Traders 1,25,000 and
- to M/s IM Brothers 1,20,000
Consignor Books
Dr/Cr - Transaction analysis
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Credit - Consignment a/c
Nominal
↓
Credit
{all incomes & gains}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 incomes on consignment.
Therefore, value of sales made by the consignee is credited to the Consignment a/c.
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Debit -
The account to be debited is dependent on whether it is a cash sale or a credit sale. In the books of the consignor, the mode of receipt of the proceeds of cash sale would be irrelevant.
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Consignee a/c (cash sales)
Personal
↓
Debit
{the benefit receiver}Consignee receives the sale proceeds in cash or by cheque which makes him the benefit receiver.
From the moment the consignee receives the sale proceeds, he stands in the position of a debtor.
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Consignment Debtors a/c (Credit Sales)
Personal
↓
Debit
{the benefit receiver}Consignment Debtors a/c represents the buyers of goods on credit from the consignee. They having bought goods without having to pay would be the benefit receivers.
It helps the organisation derive appropriate information.
- Consignment Debtors a/c balance represents credit sale dues.
- Consignee a/c balance represents dues from proceeds collected from cash sales as well from consignment debtors.
Note
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Dr - Individual Consignment Debtor a/c
To derive greater information
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Dr - Consignee a/c
To derive lesser information
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Journal
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Cash Sales made by the consignee
Mode of collection irrelevant
Consignee a/c To Consignment a/cDr
1,40,000
1,40,000[For the cash sales made and the proceeds received in cash] Consignee a/c To Consignment a/cDr
25,000
25,000[For the cash sales made and the proceeds received by cheque] Single entry for Net Effect
Consignee a/c To Consignment a/cDr
1,65,000
1,65,000 -
Credit Sales made
Assuming that a single Consignment Debtors a/c is being maintained to derive information relating to credit sale dues.
Consignment Debtors a/c To Consignment a/cDr
1,25,000
1,25,000[For goods sold to M/s SW Traders on credit] Consignment Debtors a/c To Consignment a/cDr
1,20,000
1,20,000[For goods sold on credit to M/s IM Brothers] -
Opting to derive greater information
SW Traders a/c To Consignment a/cDr
1,25,000
1,25,000IM Brothers a/c To Consignment a/cDr
1,20,000
1,20,000 -
Opting to derive lesser information
Consignee a/c To Consignment a/cDr
1,25,000
1,25,000Consignee a/c To Consignment a/cDr
1,20,000
1,20,000Single entry for Net Effect
Where the sales are not being recorded date wise, a single entry for the total amount may be recorded.
Consignee a/c To Consignment a/cDr
2,45,000
2,45,000Since the entry for recording cash sales is also the same, the total may include cash as well as credit sales.
Consignee a/c To Consignment a/cDr
4,05,000
4,05,000
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Ledger
One of the following sets of accounts will appear in the ledger depending on the choice made relating to the quantum of information that the accounting system has to provide.
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Normally
Consignment a/c Dr Cr Particulars Amount Particulars Amount
By Consignee a/c
By Consignee a/c
By Consignment Debtors a/c
By Consignment Debtors a/c
1,40,000
25,000
1,25,000
1,20,000Consignee a/c Dr Cr Particulars Amount Particulars Amount
To Consignment a/c
To Consignment a/c
1,40,000
25,000
Consignment Debtors a/c Dr Cr Particulars Amount Particulars Amount
To Consignment a/c
To Consignment a/c
1,25,000
1,20,000
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Opting to derive greater information
Consignment a/c Dr Cr Particulars Amount Particulars Amount
By Consignee a/c
By Consignee a/c
By SW Traders a/c
By IM Brothers a/c
1,40,000
25,000
1,25,000
1,20,000Consignee a/c Dr Cr Particulars Amount Particulars Amount
To Consignment a/c
To Consignment a/c
1,40,000
25,000
SW Traders a/c Dr Cr Particulars Amount Particulars Amount
To Consignment a/c
1,25,000
IM Brothers a/c Dr Cr Particulars Amount Particulars Amount
To Consignment a/c
1,20,000
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Opting to derive lesser information
Consignment a/c Dr Cr Particulars Amount Particulars Amount
By Consignee a/c
By Consignee a/c
By Consignee a/c
By Consignee a/c
1,40,000
25,000
1,25,000
1,20,000Consignee a/c Dr Cr Particulars Amount Particulars Amount
To Consignment a/c
To Consignment a/c
To Consignment a/c
To Consignment a/c
1,40,000
25,000
1,25,000
1,20,000
Net effect
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Where one entry for cash sales and another for credit sales has been recorded.
Consignment a/c Dr Cr Particulars Amount Particulars Amount
By Consignee a/c
By Consignee a/c
1,65,000
2,45,000Consignee a/c Dr Cr Particulars Amount Particulars Amount
To Consignment a/c
To Consignment a/c
1,65,000
2,45,000
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Where a single entry for both cash and credit sales has been recorded.
Consignment a/c Dr Cr Particulars Amount Particulars Amount
By Consignee a/c
4,05,000Consignee a/c Dr Cr Particulars Amount Particulars Amount
To Consignment a/c
4,05,000
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Consignee Books
Dr/Cr - Transaction analysis
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Credit - Consignor a/c
Personal
↓
Credit
{the benefit giver}Sales are made on behalf of the consignor. The sale proceeds received and receivable belong to the consignor. The consignee owes these proceeds to the consignor. The cash sale proceeds would be due now and the credit sale proceeds would be due as and when they are collected.
The consignor stands in the position of a benefit giver for the amounts received and receivable by the consignee.
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Debit -
The account to be debited is dependent on the mode of sale and further on the mode of receipt when it is a cash sale.
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Cash a/c
Real
↓
Debit
{what comes in}Cash comes in, when the cash sale proceeds are received in cash.
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Bank a/c
Personal
↓
Debit
{the benefit receiver}Cash sale proceeds received through a cheque go into the bank account, making Bank the benefit receiver.
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Individual Consignment Debtor a/c
Personal
↓
Debit
{the benefit receiver}Since the purchase is on credit, the buyer would be the benefit receiver.
Since the responsibility for collection is with the consignee, maintaining individual consignment debtor accounts would be helpful.
Note
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Dr - Combined Consignment Debtor a/c
To derive lesser information
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Journal
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Cash received towards cash sale proceeds
Cash a/c To Consignor a/cDr
1,40,000
1,40,000[For the cash sales made and the proceeds received in cash] -
Cheque received towards cash sale proceeds
Bank a/c To Consignor a/cDr
25,000
25,000[For the cash sales made and the proceeds received by a cheque] -
Credit Sales
SW Traders a/c To Consignment a/cDr
1,25,000
1,25,000[For goods sold to M/s SW Traders on credit] IM Brothers a/c To Consignment a/cDr
1,20,000
1,20,000[For goods sold on credit to M/s IM Brothers] Since transactions take place at the consignee's place, distinct recording for individual sales transactions would be made.
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Opting to derive lesser information
Consignment Debtors a/c To Consignment a/cDr
1,25,000
1,25,000Consignment Debtors a/c To Consignment a/cDr
1,20,000
1,20,000
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Ledger
One of the following sets of accounts will appear in the ledger depending on the choice made relating to the quantum of information that the accounting system has to provide.
-
Normally
Consignor a/c Dr Cr Particulars Amount Particulars Amount
By Cash a/c
By Bank a/c
By SW Traders a/c
By IM Brothers a/c
1,40,000
25,000
1,25,000
1,20,000SW Traders a/c Dr Cr Particulars Amount Particulars Amount
To Consignor a/c
1,25,000
IM Brothers a/c Dr Cr Particulars Amount Particulars Amount
To Consignor a/c
1,20,000
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Opting to derive lesser information
Consignor a/c Dr Cr Particulars Amount Particulars Amount
By Cash a/c
By Bank a/c
By Consignment Debtors a/c
By Consignment Debtors a/c
1,40,000
25,000
1,25,000
1,20,000Consignment Debtors a/c Dr Cr Particulars Amount Particulars Amount
To Consignor a/c
To Consignor a/c
1,25,000
1,20,000