The consignee, selling the goods on consignment basis is entitled, as remuneration, to a commission on sales. This commission may take different forms depending on the agreement between the Consignor and the Consignee.

The principal agent relationship between the Consignor and the Consignee is guided by the agreement between them. The type of commissions and the method to be adopted for their calculation would also be specified by the agreement.

In general we come across the following types of commissions

1. Ordinary Commission
2. Del Credere Commission
3. Overriding Commission
4. Special Commission

Calculation of commission

Where there is a specific method agreed upon to calculate a type of commission, that has to be followed.

No commission can be calculated without the information relating to the basis for calculation.

Where any of these commissions are given as a % and in the absence of information to the contrary, it is conventionally calculated as a % of gross sale proceeds.

The consignee selling goods on consignment, is entitled to an ordinary commission, del credere commission for facilitating credit sales, overriding commission and a special commission.

Example

The consignee is entitled to the following Commissions

1. Ordinary Commission 14,000
2. Del Credere Commission 8,000
3. Overriding Commission 2,450 and
4. Special Commission 1,200

Dr/Cr - Transaction analysis

All commissions payable to the consignee, would be

• expenditure for the consignment and
• amounts due to the consignee

• Debit - Consignment a/c

  Nominal
  ↓
  Debit
  {all expenses & losses}

  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 expenses on consignment.

  Therefore, commission payable to the consignee, being expenditure on consignment, is debited to the Consignment a/c.

• Credit - Consignee a/c

  Personal
  ↓
  Credit
  {the benefit giver}

  Consignee, to whom the expense is to be paid, would be the benefit giver.

  Persons to whom the organisation owes are its creditors.

Journal

1. Ordinary Commission payable

   Consignment a/c To Consignee a/c	Dr	14,000	14,000
   [For the ordinary commission, due to the consignee]

2. Delcredere Commission payable

   Consignment a/c To Consignee a/c	Dr	8,000	8,000
   [For the del credere commission, due to the consignee]

3. Overriding commission payable

   Consignment a/c To Consignee a/c	Dr	2,450	2,450
   [For the overriding commission, due to the consignee]

4. Special commission payable

   Consignment a/c To Consignee a/c	Dr	1,200	1,200
   [For the special commission, due to the consignee]

Recording only the Net Effect

Since the entry for recording all commissions is the same, a single entry for the total amount may be recorded.

	Consignment	Consignee
1) 2) 3) 4)	+14,000 +8,000 +2,450 +1,200	−14,000 −8,000 −2,450 −1,200
Net	−25,650	+25,650
Dr(+)/Cr(−)

Consignment a/c To Consignee a/c

Dr

25,650

25,650

This will result in minimising the information available relating to commissions.

Ledger

Consignment a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To Consignee To Consignee To Consignee To Consignee	14,000 8,000 2,450 1,200

Consignee a/c

Dr Cr
Particulars	Amount	Particulars	Amount
		By Consignment By Consignment By Consignment By Consignment	14,000 8,000 2,450 1,200

Recording only the Net Effect

Consignment a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To Consignee	25,650

Consignee a/c

Dr Cr
Particulars	Amount	Particulars	Amount
		By Consignment	25,650

Dr/Cr - Transaction analysis

All commissions receivable from the consignor, would be

• incomes and
• amounts due from the consignor

• Debit - Consignor a/c

  Personal
  ↓
  Debit
  {the benefit receiver}

  Commission is payable by the consignor, which leaves the consignor in the position of a debtor, a benefit receiver.

• Credit - __ Commission a/c

  Nominal
  ↓
  Credit
  {all incomes & gains}

  Commission by whatever name identified is income.

  The account to be credited is dependent on the commission whose due is being recorded and the account that is used for providing the information relating to that commission.

  Note

  If the consignee intends to maintain only minimal information, a single commission account would be maintained to derive all the information relating to the various kinds of commissions on consignment sales.

  • Cr - Consignment Commission a/c

    To derive lesser information

  In the same direction, he may also choose to club two or more kinds of commissions.

Journal

1. Ordinary Commission receivable

   Consignor a/c To Ordinary Commission a/c	Dr	14,000	14,000
   [For the Ordinary commission on consignment sales receivable]

   • Opting to derive lesser information

     Consignor a/c To Consignment Commission a/c

     Dr

     14,000

     14,000

2. Delcredere Commission receivable

   Consignor a/c To Delcredere Commission a/c	Dr	8,000	8,000
   [For the Delcredere commission on consignment sales receivable]

   • Opting to derive lesser information

     Consignor a/c To Consignment Commission a/c

     Dr

     8,000

     8,000

3. Overriding commission receivable

   Consignor a/c To Overriding Commission a/c	Dr	2,450	2,450
   [For the Overriding commission on consignment sales receivable]

   • Opting to derive lesser information

     Consignor a/c To Consignment Commission a/c

     Dr

     2,450

     2,450

4. Special commission receivable

   Consignor a/c To Special Commission a/c	Dr	1,200	1,200
   [For the Overriding commission on consignment sales receivable]

   • Opting to derive lesser information

     Consignor a/c To Consignment Commission a/c

     Dr

     1,200

     1,200

Recording the Net Effect

The journal entries for recording various kinds of commission if being recorded at the same time, may be clubbed into a single entry by recording the net effect of the transactions.

	Consignor	Ordinary	Overriding	Delcredere	Special
1) 2) 3) 4)	+14,000 +8,000 +2,450 +1,200	−14,000	−8,000	−2,450	−1,200
Net	+25,650	−14,000	−8,000	−2,450	−1,200
Dr(+)/Cr(−)

Consignor a/c To Ordinary Commission a/c To Delcredere Commission a/c To Overriding Commission a/c To Special Commission a/c

Dr

25,650

14,000 8,000 2,540 1,200

• Opting to derive lesser information

  	Consignor	Consignment Commission
  1) 2) 3) 4)	+14,000 +8,000 +2,540 +1,200	−14,000 −8,000 −2,540 −1,200
  Net	−25,650	+25,650
  Dr(+)/Cr(−)

Consignor a/c To Consignment Commission a/c

Dr

25,650

25,650

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
  To Ordinary Commission a/c To Delcredere Commission a/c To Overriding Commission a/c To Special Commission a/c	14,000 8,000 2,450 1,200

  Ordinary Commission a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Consignor a/c	14,000

  Delcredere Commission a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Consignor a/c	8,000

  Overriding Commission a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Consignor a/c	2,450

  Special Commission a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Consignor a/c	1,200

  Recording the Net Effect

  The ledger postings would be the same even if the net effect is recorded.

• Opting to derive lesser information

  Consignor a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Consignment Commission a/c To Consignment Commission a/c To Consignment Commission a/c To Consignment Commission a/c	14,000 8,000 2,450 1,200

  Consignment Commission a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Consignor a/c By Consignor a/c By Consignor a/c By Consignor a/c	14,000 8,000 2,450 1,200

  Recording the Net Effect

  Consignor a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Consignment Commission a/c	25,650

  Consignment Commission a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Consignor a/c	25,650