Bad Debts, Discounts :: Unrealised Sale Proceeds from Consignment Debtors

... From Page 23

   
 

Credit Sale

The consignee would make sales on credit. The amount due from those who have purchased the stock on credit from the consignee identified as "Consignment Debtors" will be collected by the consignee. There is also a possibility for the consignment debtors to pay the consignor directly.

Unrealised Sale Proceeds

The sale proceeds can be treated as unrealised when there is a difference between the amount due from the consignment debtor and the actual amount collected from him. The sale proceeds may be unrealised on account of a discount being given to the consignment debtor or on account of the debt itself becoming bad i.e. the consignment debtor not being able to pay up the due.

Discounts

There is a possibility of a discount being given from the amount due from the consignment debtors subsequent to the sale transaction. This may be on account of a number of reasons like the consignment debtor asking for a discount at the time of payment of cash, the consignment debtor finding a defect in quality of the goods may ask for reduction in the price etc.

Bad Debts

There is also a possibility of the consignment debtor not paying up the amounts due whereby it becomes a bad debt. The total due may become a bad debt or a part of the amount may be recovered and the rest may become a bad debt (like in the case of a person becoming insolvent and the estate realised being distributed among his creditors which ultimately works out to a payment of 40 paisa in the rupee).

Discounts: Who should bear this loss

The loss on account of discounts is a normal loss and should be borne by the consignor. This is a reduction given during the normal course of business if it is given at the time of the consignment debtor paying up cash. Even when the reduction is on account of the inferior quality of the stocks, the consignor has to bear the loss because it is on account of his own fault that he had to accept a reduced payment.

Bad Debts: Who should bear this loss

The loss on account of bad debts is to be borne by the consignor or the consignee depending on the agreement made between them.

Consignee Receiving Del Credere Commission
Where the consignee is in receipt of "Del credere commission" he would be responsible for the collection of the dues from the consignment debtors. Therefore the consignee would have to bear the loss on account of bad debts.

Consignee not in receipt of Del Credere Commission
Where the consignee is not in receipt of "Del credere commission" he would not be responsible for the collection of the dues from the consignment debtors. Not that he would not take any responsibility for the collection of the dues, but it implies that the consignee would not bear any loss on account of the consignment debtors not paying up. Therefore the consignor would have to bear the loss on account of bad debts.

37. June 30th: For the discount allowed to the consignment debtors Rs. 1,200.
38. June 30th: For the consignment debtors unrealised Rs. 1,500 to be borne by the consignor.
39. June 30th: For the Bad Debts relating to consignment sales Rs. 800 to be borne by the consignee.

Consignor's Books Hide/Show

37
Since the discounts allowed to the consignment debtors is to be borne by the consignor himself, this would amount to a loss chargeable to the "Consignment a/c". Therefore the "Consignment a/c" is debited.
[Consignment a/c — Nominal a/c — Debit all expenses and losses]

38
Since the bad debt incurred is to be borne by the consignor himself, this would amount to a loss chargeable to the "Consignment a/c". Therefore the "Consignment a/c" is debited.
[Consignment a/c — Nominal a/c — Debit all expenses and losses]

37/38 Since the amount due from the consignment debtors is reduced on account of the discounts given, the "Consignment Debtors a/c" would have to be credited.
[Consignment Debtors a/c — Personal a/c — Credit ...]

Note:
The above two entries can be interpreted as reversal of the sale entries since that much amount of the sale proceeds would not be recoverable.

39
Since the bad debt incurred is to be borne by the consignee, this would not influence the accounts of the consignor. The consignee has to pay the consignor irrespective of whether the consignment debtor has paid up or not.
Note:
However since the consignment debtor is sure of not paying up, the consignor may transfer the amount due from the "Consignment Debtors a/c" to the "Consignee a/c" indicating that the consignee should pay up. This would/may be done only if the original credit sale transaction had been recorded by the consignor using the "Consignment Debtor a/c".
[Consignment Debtor a/c — Personal a/c — Credit...]
[Consignee a/c — Personal a/c — Debit...]
{Transfer of a debit balance from one account to the second would result in the second account being debited and the first account being credited.}

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

30/06/05
30/06/05
 

To Con. Drs a/c (37)
To Con. Drs a/c (38)
 



 

1,200
1,500
 




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




30/06/05
30/06/05
30/06/05
 

By Vij. Con a/c (37)
By Vij. Con a/c (38)
By M T a/c (39)
 




 

1,200
1,500
800
 
DrMaruthi Traders a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

30/06/05
 

To Con. Drs a/c (39)
 


 

800
 




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
1,200
1,200
June 30th Dr
1,500
1,500
June 30th Dr
800
800

Alternative: 37/38
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 credited instead of the "Consignment Debtors a/c".
[Consignee a/c — Personal a/c — Credit ...]
DrVijayawada Consignment a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

30/06/05
30/06/05
 

To M T a/c (37)
To M T a/c (38)
 



 

1,200
1,500
 




DrMaruthi Traders a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)




30/06/05
30/06/05
 

By Vij. Con a/c (37)
By Vij. Con a/c (38)
 



 

1,500
1,200
 

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
1,200
1,200
June 30th Dr
1,500
1,500

Note: 39
There would be no possibility of recording the entry since the credit sale amount had been recorded as due in the consignee account itself.

Consignees Books Hide/Show

37
Since the discounts allowed to the consignment debtors is to be borne by the consignor himself, this would reduce the amount to be paid to the consignor. Therefore the "Consignor a/c" is debited.
[Consignor a/c — Personal a/c — Debit ...]

38
Since the bad debt incurred is to be borne by the consignor himself, this would reduce the amount to be paid to the consignor. Therefore the "Consignor a/c" is debited.
[Consignor a/c — Personal a/c — Debit ...]

Note:
The above two entries can be interpreted as reversal of the sale entries since that much amount of the sale proceeds would not be recoverable.

39
Since the bad debt incurred is to be borne by the consignee, it is a loss to the consignee. The consignee has to pay the consignor irrespective of whether the consignment debtor has paid up or not. This loss is recorded in an account specifically created to record such losses by name "Consignment Bad Debts a/c".
[Consignment Bad Debts a/c — Nominal a/c — Debit all expenses and losses...]

37/38/39
Since the amount due from the consignment debtors is reduced on account of the discounts given and the bad debts, the "Consignment Debtors a/c" would have to be credited.
[Consignment Debtors a/c — Personal a/c — Credit ...]

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 (37)
To Con. Dr a/c (38)
 



 

1,200
1,500
 




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




30/06/05
30/06/05
30/06/05
 

By I S a/c (37)
By I S a/c (38)
By Con. B D a/c (39)
 




 

1,200
1,500
800
 
DrConsignment Bad Debts a/c Cr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

30/06/05
 

To Con. Dr a/c (39)
 


 

800
 




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
1,200
1,200
June 30th Dr
1,500
1,500
June 30th Dr
800
800

Author Credit : The Edifier ... Continued Page 25

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