Cash/Credit Sales made by the consignee

... From Page 9

   
 

The price at which sales are to be made by the consignee would be decided by the consignor.
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The consignee can sell goods both for cash as well as on credit. The consignor may allow the consignee to vary the selling price based on the customer to whom he is selling.

If the consignee is held responsible for the collection of dues on account of credit sales, he may not take the initiative to sell goods on credit to customers where he feels there is a possibility of bad debts.

All the customers to whom the consignee makes credit sales are in direct contact with the consignee and they are people who are known to the consignee. Therefore he is the best person to collect the dues from them.

If the consignor is unwillling to take up the loss on account of bad debts from credit sales, then the consignee would only make cash sales which would result in a lesser turnover for the consignor.

Therefore to encourage the consignee to take up the responsibility of collecting the dues from credit sales, the consignor gives him an additional commission (apart from the ordinary commission for sale) called "del credere" commission. Unless agreed upon otherwise, this commission is also calculated as a % gross sale proceeds.

09. June 18th: For the sales made on the consignment
      (a) for cash Rs. 1,40,000
      (b) by cheque Rs. 25,000

10. June 24th: For the sales made on the consignment on credit to
      (a) M/s Swaraj Traders Rs. 1,25,000 and
      (b) M/s Irfan Brothers Rs. 1,20,000.

Consignor's Books Hide/Show

The information relating to sales made by the consignee would be received by the consignor periodically. The information relating to sales and other transactions relevant to accounting is gathered by the consignor from the "Account Sales" sent by the consignee.

Accounts Effected by the Transaction » Identification & Analysis:

  • Credit »

    • 09 (a), (b), 10 (a), (b),: Vijayawada Consignment a/c

      Since Sales (whether made for cash or on credit) is income to consignment, it is to be credited to the "Consignment a/c", the only nominal account to record the incomes/gains and expeneses/losses in relation to consignment.
      ["Consignment a/c" – Nominal a/c – Credit all incomes and gains]
  • Debit »

    • 09 (a), (b), : Maruthi Traders a/c

      The sale proceeds related to the cash sales are received by the consignee in the form of cash or a cheque. Immediately on the sale being made, the consignee becomes due to the consignor to the extent of the cash sales made.

      The person who owes us money is our debtor. Therefore the "Consignee a/c" is debited to the extent of the sale proceeds. The consignee can be considered to have received the benefit of receiving the sale proceeds.
      ["Consignee a/c" – Personal a/c – Debit the benefit receiver]

    • 10 :

      The sale proceeds related to credit sales are to be received by the consignee. The amount receivable from those to whom the consignee has sold the goods on credit can be treated in two alteraive ways
      • Alternative I : Consignment Debtors a/c

        The persons to whom the consignee has sold the goods are considered to be the persons who are due to them by the Consignor. This information is recorded in the "Consignment Debtors a/c" created for this purpose. The consignment debtors who are benefit receivers are to be debited.
        ["Consignment Debtors a/c" – Personal – Debit the benefit receiver]

        As and when the dues are collected from the "Consignment Debtors a/c" the amount collected would be transferred to the Consignee a/c. From the time the Consignment Debtors have paid up, the consignee would be shown as due to the consignor.

        This method of using a Consignment Debtors a/c would enable the Consignor

        • To assess the actual cash that is with the consingee and the amount that is still to be collected. The balance in the "Consignment Debtors a/c" always represents the credit sale proceeds still to be collected.
        • To have a clear idea of the bad debts relating to the sales made on consignment. When the consignor receives the information relating to the cash collected, bad debts, discounts given etc., he would make necessary postings in the consignment debtors account.

The effect of the transactions can be summarised as
09(a) :(i) Consignment a/c and (ii) Consignee a/c
09(b) :(i) Consignment a/c and (ii) Consignee a/c
10(a) (I) : (i) Consignment a/c and (ii) Consignment Debtors a/c
10(b) (I) : (i) Consignment a/c and (ii) Consignment Debtors a/c

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




30/06/05
30/06/05
30/06/05
30/06/05
 

By M T a/c (9a)
By M T a/c (9b)
By Con. Dr a/c (10a)
By Con. Dr a/c (10b)
 





 

1,40,000
25,000
1,25,000
1,20,000
 

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

30/06/05
30/06/05
 

To Vij. Con a/c (9a)
To Vij. Con a/c (9b)
 



 

1,40,000
25,000
 




DrConsignment Debtors a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

30/06/05
30/06/05
 

To Vij. Con a/c (10a)
To Vij. Con a/c (10b)
 



 

1,25,000
1,20,000
 




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 30th Dr
1,40,000
1,40,000
June 30th Dr
25,000
25,000
June 30th Dr
1,25,000
1,25,000
June 30th Dr
1,20,000
1,20,000

In place of the consignment debtors account, two seperate accounts for the two parties (M/s Swaraj Traders and M/s Irfan Brothers), may be maintained. This is dependent on the consignors need for information. The more the information they need, the more accounting heads they need to maintain.

The information in the seperate consignment debtors accounts may not be that useful, since the consignee passes on the information periodically along with the Account Sales and not on a daily basis. But that information may help the consignor to monitor the collection from the consignment debtors on an individual basis.

  • Debit »

    • 10:

      • Alternative II : Maruthi Traders a/c

        Though the consignee has sold the goods on credit he would be ultimately collecting the amounts due from those to whom he sold the goods on credit and sending them to the consignor. Therefore the consignor would record the transaction to indicate that the consignee is due to him instead of the consignment debtors.
        ["Consignee a/c" – Personal – Debit the benefit receiver]

        This would be the case if the consignor does not wish to create an additional account and maintain the information relating to credit sales seperately. "Remember the more information we need the more accounting heads we have to maintain".

        Where the consignment debtors account is not used and the sales made on credit are also treated as normal sale.

The effect of the transactions can be summarised as
09 (a):(i) Consignment a/c and (ii) Consignee a/c
09 (b):(i) Consignment a/c and (ii) Consignee a/c
10 (a) (I) : (i) Consignment a/c and (ii) Consignee a/c
10 (b) (I) : (i) Consignment a/c and (ii) Consignee a/c

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





30/06/05
30/06/05
30/06/05
30/06/05
 

By M T a/c (9a)
By M T a/c (9b)
By M T a/c (10a)
By M T a/c (10b)
 





 

1,40,000
25,000
1,25,000
1,20,000
 
DrM/s Maruthi Traders a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

30/06/05
30/06/05
30/06/05
30/06/05
 

To Vij. Con a/c (9)
To Vij. Con a/c (9)
To Vij. Con a/c (9)
To Vij. Con a/c (9)
 





 

1,40,000
25,000
1,25,000
1,20,000
 




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 30th Dr
1,40,000
1,40,000
June 30th Dr
25,000
25,000
June 30th Dr
1,25,000
1,25,000
June 30th Dr
1,20,000
1,20,000

The cash and Bank transactions are combined and presented as Cash/Bank as they would not make any difference in the consignor books.
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But these would make a difference when recording the books of the consignee.

Transaction Dates

The consignor would be recording the total data on the day on which he receives the account sales. Therefore, the date of recording the transactiosn generally would be the date of receipt of the account sales, even though the consignee may be able to give a date wise break up of the consignment sales made,

By Convention, all the transactions whose information is to be received from the consignee are recorded in the consignor books on the day on which the account sales are received (i.e. on the same day). Since the date relating to all the transactions appears to be the same, the date column may be eliminated from being presented while presenting the ledger accounts in relation to consignments.

Consignees Books Hide/Show

Accounts Effected by the Transaction » Identification & Analysis:

  • Credit »

    • 09 (a), (b), 10 (a), (b),: Innova Steels a/c

      In all these transactions the sales are made on behalf of the consignor. Any sale proceeds received by the consignee belong to the consignor. Any amounts receivable from consignment debtors belong to the consignor. The consignee holds the amounts on behalf of the consignor. The benefit of all these is given by the consignor. The persons to whom we owe are our creditors. Therefore Consignors a/c is to be credited.
      [Consignor a/c – Personal a/c – Credit the benefit giver]
  • Debit »

    • 09 (a): Cash a/c

      Since cash is being received "Cash a/c" is debited
      [Cash a/c – Real a/c – Debit what comes in]
    • 09 (b): Bank a/c

      Since cheque is being received "Bank a/c" is debited. Since the amount is being received the bank would be in the position of taking the benefit.
      [Bank a/c – Personal a/c – Debit the benefit receiver]
    • 10 (a), 10(b): Consignment Debtors a/c

      There is only one option to record the credit sales. Since the persons buying the consignment goods owe money to the consignee, they are consignees debtors. But since these debtors are different from the regular debtors of the consignee, they are to be recorded separately. For this purpose a separate account by name "Consignment Debtors" is used. The consignment debtors are the benefit receivers in this transaction. Hence "Consignment Debtors a/c" is debited.

      Here it would be appropriate for the consignee to maintain the consignment debtors accounts separately as it would help them pursue collections later on.
      [Consignment Debtors a/c – Personal a/c – Debit the benefit receiver]

The effect of the transactions can be summarised as
09(a):(i) Consignor a/c and (ii) Cash a/c
09(b):(i) Consignor a/c and (ii) Bank a/c
10(a):(i) Consignor a/c and (ii) Consignment Debtors a/c
10(b):(i) Consignor a/c and (ii) Consignment Debtors a/c

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




18/06/05
18/06/05
24/06/05
24/06/05
 

By Cash (9a)
By Bank (9b)
By S T a/c (10a)
By I B a/c (10b)
 





 

1,40,000
25,000
1,25,000
1,20,000
 
DrM/s Swaraj Traders a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

18/06/05
 

To M/s I S (10a)
 


 

1,25,000
 




DrM/s Ibrahim Brothers a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

24/06/05
 

To M/s I S (10b)
 


 

1,20,000
 




In place of the two seperate accounts for the two parties (M/s Swaraj Traders and M/s Irfan Brothers), a single account with the name consignment debtors account may be maintained. This is dependent on the consignees need for information. The more the information they need, the more accounting heads they need to maintain.

The information in the seperate consignment debtors accounts will be useful for the consignee to monitor the recovery on an individual basis.

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 18th Dr
1,40,000
1,40,000
June 18th Dr
25,000
25,000
June 24th Dr
1,25,000
1,25,000
June 30th Dr
1,20,000
1,20,000

Author Credit : The Edifier ... Continued Page 11

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