Collection of Credit Sales dues from Consignment Debtors by the Consignor

SN 12

Transaction

Normally the dues from consignment debtors are collected by the consignee. However, it is possible that the consignment debtors pay up directly to the consignor under circumstances.

The Consignment debtors may make the payment to the consignor in one or more of the following ways.

  • In cash
  • By a cheque

  • Transferring an asset

    • Endorsing a Bill Receivable by them to the consignor

  • Taking up or assuming a liability

    • Accepting a bill drawn on them by the consignor
    • Taking over a bill payable by the consignor

Example

Received by the consignor from the consignment debtors

  1. Cash 10,000 from M/s SW Traders,
  2. Cheque 10,000 from M/s IM Brothers,
  3. Bill accepted by M/s SW Traders 4,500,
  4. Bill Endorsed by M/s IM Brothers 8,000
  5. Bill Payable taken over by M/s SW Traders 4,000.

Consignor Books

Transaction Analysis

When credit sales dues are recorded as dues from Consignment Debtors.

Consignment Debtors a/c
To Consignment a/c
Dr
[For the sales made on credit to M/s SW Traders]

Since there is only one account representing the consignment debtors, all payments received would be resulting in the same journal entry.

  • Credit - Consignment Debtor a/c

    Personal
    ↓
    Credit
    {the benefit giver}

    The consignment debtor making the payment would be the benefit giver.

    Note

    Where the other related transactions are recorded accordingly,

    • Credit - Individual Consignment Debtor a/c

      To derive greater information

      Where the consignment debtors have a distinct ledger account for each, the sales would have been recorded as

      Individual Consignment Debtor a/c
      To Consignment a/c
      		Dr

      In such a case, returns would affect the relevant consignment debtor's account.

    • Credit - Consignee a/c

      To derive lesser information

      Where the consignment debtors are not identified at all in the books, the sales would have been recorded as follows, making the consignee responsible for the sale proceeds

      Consignee a/c
      To Consignment a/c
      		Dr

      In such a case, the returns would influence the consignee's account.

  • Debit -

    The account to be debited is dependent on the mode of payment received.

    • Cash a/c

      Real
      ↓
      Debit
      {what comes in}

      Cash comes in, when the due is received in cash.

    • Bank a/c

      Personal
      ↓
      Debit
      {the benefit receiver}

      Due received through a cheque goes into the bank account, making Bank the benefit receiver.

    • Bills Receivable a/c (Transferring an asset)

      Real
      ↓
      Debit
      {what comes in}

      Where the receipt is in the form of an asset transferred by the consignment debtor, the asset comes in.

      This would be the case, when

      • a bill receivable by the consignment debtor is endorsed by him.

    • Bills Payable a/c (Taking over a liability)

      Personal
      ↓
      Debit
      {the benefit receiver}

      Where the liability gets cleared by being taken over by the consignment debtor, the account representing the liability would be the benefit receiver.

      This would be the case, when

      • a bill drawn on the consignment debtor is accepted by him and
      • a bill payable is taken over by the consignment debtor

Journal

  1. Dues received in cash

    Cash a/c
    To Consignment Debtors a/c
    		Dr
    		 10,000
    10,000
    [For the cash received from M/s SW Traders]

    • Opting to derive greater information

      Cash a/c
      To SW Traders a/c
      		Dr
      		 10,000
      10,000

    • Opting to derive lesser information

      Cash a/c
      To Consignee a/c
      		Dr
      		 10,000
      10,000

  2. Dues received by cheque

    Bank a/c
    To Consignment Debtors a/c
    		Dr
    		 10,000
    10,000
    [For the cheque received towards dues from M/s IM Brothers]

    • Opting to derive greater information

      Bank a/c
      To IM Brothers a/c
      		Dr
      		 10,000
      10,000

    • Opting to derive lesser information

      Bank a/c
      To Consignee a/c
      		Dr
      		 10,000
      10,000

  3. Bill Received towards dues

    Bills Receivable a/c
    To Consignment Debtors a/c
    		Dr
    		 4,500
    4,500
    [For the Bill drawn on M/s SW Traders accepted by them]

    • Opting to derive greater information

      Bills Receivable a/c
      To SW Traders a/c
      		Dr
      		 4,500
      4,500

    • Opting to derive lesser information

      Bills Receivable a/c
      To Consignee a/c
      		Dr
      		 4,500
      4,500

  4. Endorsed bill received towards dues

    Bills Receivable a/c
    To Consignment Debtors a/c
    		Dr
    		 8,000
    8,000
    [For the Bill endorsed by M/s IM Brothers towards their dues]

    • Opting to derive greater information

      Bills Receivable a/c
      To IM Brothers a/c
      		Dr
      		 8,000
      8,000

    • Opting to derive lesser information

      Bills Receivable a/c
      To Consignee a/c
      		Dr
      		 8,000
      8,000

  5. Bills Payable taken over

    Bills Payable a/c
    To Consignment Debtors a/c
    		Dr
    		 4,000
    4,000
    [For the Bill Payable taken over by M/s SW Traders in settlement of their dues]

    • Opting to derive greater information

      Bills Payable a/c
      To SW Traders a/c
      		Dr
      		 4,000
      4,000

    • Opting to derive lesser information

      Bills Payable a/c
      To Consignee a/c
      		Dr
      		 4,000
      4,000

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 Debtors a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Cash a/c
    By Bank a/c
    By Bills Receivable a/c
    By Bills Receivable a/c
    By Bills Payable a/c
    10,000
    10,000
    4,500
    8,000
    4,000

  • Opting to derive greater information

    SW Traders a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Cash a/c
    By Bills Receivable a/c
    By Bills Payable a/c
    10,000
    4,500
    4,000
    IM Brothers a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Bank a/c
    By Bills Receivable a/c
    10,000
    8,000

  • Opting to derive lesser information

    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Cash a/c
    By Bills Receivable a/c
    By Bills Payable a/c
    By Bank a/c
    By Bills Receivable a/c
    10,000
    4,500
    4,000
    10,000
    8,000

Consignee Books

Dr/Cr - Transaction Analysis

This transaction has the same effect as the following two transactions taken together.

  • The consignment debtor paying the consignee and

    Cash a/c
    To Consignment Debtor a/c
    		Dr

  • The consignee sending that amount to the consignor

    Consignor a/c
    To Cash a/c
    		Dr

Assume the payment is received in cash and the same is sent to the consignor.

Since the amounts are received by the consignor directly, the consignee's due to the consignor would be cleared to that extent and at the same time the consignment debtors would also be cleared of their dues to that extent.

The mode of payment would be irrelevant to the consignee, as he is not in the receipt of the payment. Only the amounts paid would be relevant.

  • Debit - Consignor a/c

    Personal
    ↓
    Debit
    {the benefit receiver}

    Consignor being in the receipt of the payments, would be the benefit receiver.

  • Debit - Individual Consignment Debtor a/c

    Personal
    ↓
    Credit
    {the benefit giver}

    Consignment Debtor being the payee, would be the benefit giver.

    The account to be debited would be the account representing the consignment debtor making the payment.

    Note

    • Debit - Consignment Debtors a/c

      To derive lesser information

Journal

The journal entry to be recorded would be the same, irrespective of the mode of payment.

  1. Paid by consignment debtors to consignor in cash

    Consignor a/c
    To SW Traders a/c
    		Dr
    		 10,000
    10,000
    [For the cash paid by M/s SW Traders to the consignor]

    • Opting to derive lesser information

      Consignor a/c
      To Consignment Debtors a/c
      		Dr
      		 10,000
      10,000

  2. Paid by consignment debtors to consignor by cheque

    Consignor a/c
    To IM Brothers a/c
    		Dr
    		 10,000
    10,000
    [For the payment made by M/s IM Brothers to the consignor by cheque towards their dues]

    • Opting to derive lesser information

      Consignor a/c
      To Consignment Debtors a/c
      		Dr
      		 10,000
      10,000

  3. Bill drawn on consignment debtors by the consignor accepted

    Consignor a/c
    To SW Traders a/c
    		Dr
    		 4,500
    4,500
    [For the Bill drawn by the consignor on M/s SW Traders accepted by them]

    • Opting to derive lesser information

      Consignor a/c
      To Consignment Debtors a/c
      		Dr
      		 4,500
      4,500

  4. Bill endorsed by consignment debtors to consignor

    Consignor a/c
    To IM Brothers a/c
    		Dr
    		 8,000
    8,000
    [For the Bill endorsed by M/s IM Brothers to the consignor towards their dues]

    • Opting to derive lesser information

      Consignor a/c
      To Consignment Debtors a/c
      		Dr
      		 8,000
      8,000

  5. Bills Payable of consignor taken over by consignment debtors

    Consignor a/c
    To SW Traders a/c
    		Dr
    		 4,000
    4,000
    [For the Bill Payable of the consignor taken over by M/s SW Traders in settlement of their dues]

    • Opting to derive lesser information

      Consignor a/c
      To Consignment Debtors a/c
      		Dr
      		 4,000
      4,000

Recording Net Effect

Where the collections are not being recorded date wise and where the consignee chooses to derive lesser information, all the entries for recording the receipts would be the same. As such a single entry for the total amount may be recorded.

Consignment
Debtors 		Consignee
1)
2)
3)
4)
5) 		−10,000
−4,500
−4,000
−10,000
−8,000 		+10,000
+4,500
+4,000
+10,000
+8,000
Net −36,500 +36,500
Dr(+)/Cr(−)
Consignor a/c
To Consignment Debtors a/c
Dr
 36,500
36,500

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 SW Traders a/c
    To IM Brothers a/c
    To SW Traders a/c
    To IM Brothers a/c
    To SW Traders a/c
    10,000
    10,000
    4,500
    8,000
    4,000

    SW Traders a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignor a/c
    By Consignor a/c
    By Consignor a/c
    10,000
    4,500
    4,000
    IM Brothers a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignor a/c
    By Consignor a/c
    10,000
    8,000

  • Opting to derive lesser information

    Consignor a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignment Debtors a/c
    To Consignment Debtors a/c
    To Consignment Debtors a/c
    To Consignment Debtors a/c
    To Consignment Debtors a/c
    10,000
    10,000
    4,500
    8,000
    4,000

    Consignment Debtors a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignor a/c
    By Consignor a/c
    By Consignor a/c
    By Consignor a/c
    By Consignor a/c
    10,000
    10,000
    4,500
    8,000
    4,000

    Recording Net Effect

    Consignor a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignment Debtors a/c
    36,500

    Consignment Debtors a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignor a/c
    36,500
Author : The Edifier
SN 14