Stock Returns by Consignee; Sales Returns by Consignment Debtors

... From Page 24

   
 

Who Returns Stocks?

The consignee may find the need to return the goods received by him on account of the goods being defective or not of use etc.,. The consignment debtors may also return the goods bought by them on account of a number of reasons like the goods being in excess of their need, the goods being defective, etc. The return of goods is a normal procedure that we find in business. In relation to the trading business this is what we identify as "Purchase Returns" and "Sale Returns".

Consignee Returning the Goods

The consignee returns the goods the consignor. The value of the goods being returned to the consignor would be the cost of the goods consigned by the consignor.

Consignment Debtors Returning the Goods

The consignment debtors may return the goods to the consignee. The value of the goods being returned to the consignee would be the value recorded in the sale transaction.

The consignment debtors may also return the goods to the consignor directly. This involves two transactions. The transaction of the consignment debtor returning the goods to the consignee and then the consignee returning the goods to the consignor. The value of the goods being returned to the consignee would be the value recorded in the sale transaction and the value to be recorded in the transaction involving the goods returned to the consignor would be the cost of the goods consigned.

40. June 30th: For the value of goods returned by the consignee Rs. 8,400.
41. June 30th: For the goods returned by the consignment debtors Rs. 5,000 to the consignee.
42. June 30th: For the goods returned by the consignment debtors Rs. 4,000 to the consignor directly. Cost of these goods Rs. 3,000.

Consignor's Books Hide/Show

40
Since the goods are returned by the consignee the expenditure on account of the goods consigned on consignment should be reduced. The expenditure is charged to the consignment account by debiting it. Therefore the expenditure is reduced by crediting the consignment account.
[Consignment a/c — Nominal a/c — Credit... ]
The value of goods sent on consignment should be reduced by the value of the goods returned. Goods sent on consignment account is credited while sending the goods. Therefore the goods sent on consignment account should be debited at the time of the goods being returned.
[Goods Sent on Consignment a/c — Nominal a/c — Debit... ]

41
Since the goods are returned by the consignment debtors to the consignee, this would amount to a return of the goods sold. Therefore the amount due from the consignment debtors should be reduced by the value of the sale relating to the goods returned. Consignment Debtors accounting being debited at the time of sale should be credited at the time of return.
[Consignment Debtors a/c — Personal a/c — Credit... ]
The sale that has been recorded earlier crediting the consignment account is now to be written off by debiting the "Consignment a/c".
[Consignment a/c — Nominal a/c — Debit... ]

42
This transaction which seems to be a single transaction, is a combined effect of two different transactions. One the sales return by the consignment debtor and the second return of the stock to the consignor.
(I): Sales Return
Since the goods are returned by the consignment debtors to the consignee, this would amount to a return of the goods sold. Therefore the amount due from the consignment debtors should be reduced by the value of the sale relating to the goods returned. Consignment Debtors accounting being debited at the time of sale should be credited at the time of return.
[Consignment Debtors a/c — Personal a/c — Credit... ]
The sale that has been recorded earlier crediting the consignment account is now to be written off by debiting the "Consignment a/c".
[Consignment a/c — Nominal a/c — Debit... ]
(II): Goods Return
Since the goods are returned by the consignee the expenditure on account of the goods consigned on consignment should be reduced. The expenditure is charged to the consignment account by debiting it. Therefore the expenditure is reduced by crediting the consignment account.
[Consignment a/c — Nominal a/c — Credit... ]
The value of goods sent on consignment should be reduced by the value of the goods returned. Goods sent on consignment account is credited while sending the goods. Therefore the goods sent on consignment account should be debited at the time of the goods being returned.
[Goods Sent on Consignment a/c — Nominal a/c — Debit... ]
Net Effect:
Goods costing Rs. 3,000 which have been sold for Rs. 4,000 are now being returned.

  • Consignment Debtors a/c :
    (1) 4,000 (Cr) ; (2) Nil
    Total Dr = 0 and Cr = 4,000 ⇒ Net Effect = 4,000 (Cr)
  • Consignment a/c :
    (1) 4,000 (Dr) ; (2) 3,000 (Cr)
    Total Dr = 4,000 and Cr = 3,000 ⇒ Net Effect = 1,000 (Dr)
  • Goods Sent on Consignment a/c:
    (1) Nil ; (2) 3,000 (Dr)
    Total Dr = 3,000 and Cr = 0 ⇒ Net Effect = 3,000 (Dr)
If we look at the net effect of these transactions, the consignment debtors account is to be credited with the sales value of the goods, the goods sent on consignment account has to be debited with the cost value of the goods consigned and the consignment account has to be debited with the difference between the sales value and the cost of the goods i.e. the profit made on the goods.

If the actual transaction is to be recorded, the entry for the net effect should be passed. The effect may also be brought about by recording the two transactions separately. However, one should remember that the sales returns are to be recorded at the sales value and the goods returns at cost value.

Alternative:
If the credit sale had been recorded using the "Consignee a/c" in place of the "Consignment Debtors a/c" the "Consignee a/c is to be used instead of the "Consignment Debtors a/c".

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

30/06/05

30/06/06

 

To Con. Drs a/c (41)
(Or) M T a/c
To Con. Drs a/c (42)
(Or) M T a/c
 





 

5,000

1,000

 

30/06/05



 

By G S C a/c (40)



 





 

8,400



 
DrConsignment Debtors a/c (Or) Maruthi Traders a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)





30/06/05
30/06/05
30/06/06
 

By Vij. Con a/c (41)
By Vij. Con a/c (42)
By G S C a/c (42)
 




 

5,000
1,000
3,000
 
DrGoods Sent on Consignment a/c (Or) 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 (40)
To Con Dr a/c (42)
(Or) M T a/c
 



 

8,400
3,000
 




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
8,400
8,400
June 30th Dr

5,000
5,000
June 30th Dr
Dr


3,000
1,000


4,000

Consignees Books Hide/Show

40
Since the consignee does not record the value of goods received, he does not record the value of goods returned.
There is no entry for this transaction in the books of the consignee.

41
Since the goods are returned by the consignment debtors, this would amount to a return of the goods sold. Therefore the amount due from the consignment debtors should be reduced by the value of the sale relating to the goods returned. Consignment Debtors accounting being debited at the time of sale should be credited at the time of return.
[Consignment Debtors a/c — Personal a/c — Credit... ]
At the time of recording the sale, the consignor account would be credited since the sale proceeds are receivable on behalf of the consignor. Since there is a sales return, this much amount would not be needed to be paid to the consignor. Therefore the consignor account has to be debited with the value of sale proceeds.
[Consignor a/c — Personal a/c — Debit... ]

42
This transaction which seems to be a single transaction, is a combined effect of two different transactions. One the sales return by the consignment debtor and the second return of the stock to the consignor.
(I): Sales Return
Since the goods are returned by the consignment debtors, this would amount to a return of the goods sold. Therefore the amount due from the consignment debtors should be reduced by the value of the sale relating to the goods returned. Consignment Debtors accounting being debited at the time of sale should be credited at the time of return.
[Consignment Debtors a/c — Personal a/c — Credit... ]
At the time of recording the sale, the consignor account would be credited since the sale proceeds are receivable on behalf of the consignor. Since there is a sales return, this much amount would not be needed to be paid to the consignor. Therefore the consignor account has to be debited with the value of sale proceeds.
[Consignor a/c — Personal a/c — Debit... ]
(II): Goods Return
Since the consignee does not record the value of goods received, he does not record the value of goods returned.
There is no entry for this transaction in the books of the consignee.
Net Effect: Since only one of the transactions would be recorded in the books of the consignee, the net effect would be the entry itself.

DrInnova Steels a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

30/06/05
30/06/05
 

To Con. Dr a/c (41)
To Con. Dr a/c (42)
 



 

5,000
4,500
 




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




30/06/05
30/06/05
 

By I S a/c (40)
By I S a/c (42)
 



 

5,000
4,000
 

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
5,000
5,000
June 30th Dr
4,000
4,000

Goods Returns : Amount of the transaction : Cost or Value Hide/Show

The value of goods includes the cost and the direct expenses incurred on the goods till the point of valuation. But in case of goods being returned by the consignee to the consignor, only the cost of the goods are to be considered as the value of the goods being returned.

This can be understood from the following explanation. Say the consignor has consigned goods worth Rs. 10,000 to the consignee. Rs. 1,000 had been spent on the goods towards direct expenses. This would make the value of the goods as Rs. 11,000. Suppose these goods are being returned in total. Then the value to be recorded in the return transaction should be Rs. 10,000 and not Rs. 11,000. Who bears the Rs. 1,000 direct expenditure incurred already? What happens if the value is taken at Rs. 11,000.

Consider the Journal Entries for sending the goods and the return of the goods.

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
10,000
10,000
June 30th Dr
1,000
1,000
June 30th Dr
11,000
11,000
DrVijayawada Consignment a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

15/06/05
15/06/06

To G S C
To Cash a/c



10,000
1,000

18/06/05

By G S C



11,000
 
 
Total
 
 
 
11,000
 
 
 
Total
 
 
 
11,000
 
DrGoods Sent on Consignment a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

18/06/05

To Vij. Con a/c



11,000

15/06/05
30/06/05

By Vij. Con
By bal c/d



10,000
1,000
  Total   11,000   Total   11,000
30/06/05
 
To Balance b/d
 

 
1,000
 
 
 
 
 
 
 
 
 
The net effect of these transactions would be a net debit of Rs. 1,000 in the "Goods Sent on Consignment a/c". Since this account balance would be transferred to the "Trading a/c" at the end of the accounting period, it would result in a net debit of Rs. 1,000 to the Trading account. A dedit in the "Trading a/c" which is a nominal account implies a loss. That is the trading account is taking the charge of the Rs. 1,000 direct expenses.

Net Effect if the value recorded is Rs. 10,000

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
10,000
10,000
DrVijayawada Consignment a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

15/06/05
15/06/05

To Vij. Con a/c
To Cash a/c



10,000
1,000

18/06/05

30/06/05

By G S C

By bal c/d




10,000

1,000
  Total   11,000   Total   11,000
30/06/05
 
To Balance b/d
 

 
1,000
 
 
 
 
 
 
 
 
 
DrGoods Sent on Consignment a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

18/06/05

To Vij. Con a/c


10,000

15/06/05

By Vij. Con


10,000
 
 
Total
 
 
 
10,000
 
 
 
Total
 
 
 
10,000
 
If the value of the goods returned is taken at Rs. 10,000, then the net effect would be a charge of Rs. 1,000 on the Vijayawada Consignment account.

Who should bear the charge Consignment a/c or Trading a/c
This expenditure/loss being related to the transactions of consignment it would be in no way be appropriate to charge the "Trading a/c" with this expenditure. This expenditure being related to consignment should be charged to the "Consignment a/c" which happens when the value is recorded at Rs. 10,000 i.e. the original cost. Since the transactions of goods being returned are common/normal in business. Therefore any expenditure/loss in relation to it should also be treated as normal in which case the expenditure/charge should be to the "Consignment a/c" only.

Author Credit : The Edifier ... Continued Page 26

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