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

  • 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.

  • 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.

  • Conventionally

    One account for all consignment debtors is maintained.

Consignee Books

  • Deriving maximum possible information

    A distinct account for each consignment debtor is maintained.

  • 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.

  • 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

  1. Cash sales made by the consignee and sale proceeds received

    • in cash 1,40,000 and
    • by cheque 25,000
  2. 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

  • 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.

  • 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.

    • 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.

    • 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

      • Dr - Individual Consignment Debtor a/c

        To derive greater information

      • Dr - Consignee a/c

        To derive lesser information

Journal

  • Cash Sales made by the consignee

    Mode of collection irrelevant

    Consignee a/c
    To Consignment a/c
    Dr
    1,40,000
    1,40,000
    [For the cash sales made and the proceeds received in cash]
    Consignee a/c
    To Consignment a/c
    Dr
    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/c
    Dr
    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/c
    Dr
    1,25,000
    1,25,000
    [For goods sold to M/s SW Traders on credit]
    Consignment Debtors a/c
    To Consignment a/c
    Dr
    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/c
      Dr
      1,25,000
      1,25,000
      IM Brothers a/c
      To Consignment a/c
      Dr
      1,20,000
      1,20,000
    • Opting to derive lesser information

      Consignee a/c
      To Consignment a/c
      Dr
      1,25,000
      1,25,000
      Consignee a/c
      To Consignment a/c
      Dr
      1,20,000
      1,20,000

      Single 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/c
      Dr
      2,45,000
      2,45,000

      Since 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/c
      Dr
      4,05,000
      4,05,000

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

    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
    1,20,000
    Consignee 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


  • 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
    1,20,000
    Consignee 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


  • 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
    1,20,000
    Consignee 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

    • 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
      2,45,000
      Consignee a/c
      Dr Cr
      Particulars Amount Particulars Amount

      To Consignment a/c
      To Consignment a/c

      1,65,000
      2,45,000


    • 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

      4,05,000
      Consignee a/c
      Dr Cr
      Particulars Amount Particulars Amount

      To Consignment a/c

      4,05,000


Consignee Books

Dr/Cr - Transaction analysis

  • 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.

  • 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.

    • Cash a/c

      Real

      Debit
      {what comes in}

      Cash comes in, when the cash sale proceeds are received in cash.

    • 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.

    • 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

      • Dr - Combined Consignment Debtor a/c

        To derive lesser information

Journal

  • Cash received towards cash sale proceeds

    Cash a/c
    To Consignor a/c
    Dr
    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/c
    Dr
    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/c
    Dr
    1,25,000
    1,25,000
    [For goods sold to M/s SW Traders on credit]
    IM Brothers a/c
    To Consignment a/c
    Dr
    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.

    • Opting to derive lesser information

      Consignment Debtors a/c
      To Consignment a/c
      Dr
      1,25,000
      1,25,000
      Consignment Debtors a/c
      To Consignment a/c
      Dr
      1,20,000
      1,20,000

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
    1,20,000
    SW 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


  • 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
    1,20,000
    Consignment Debtors a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignor a/c
    To Consignor a/c

    1,25,000
    1,20,000