The unsold stock on consignment, identified as the Stock on Consignment has to be ascertained both in quantity and value terms.

Quantity of unsold stock

The Consignor would require the information relating to unsold stock at many points of time during the accounting period for a number of different purposes. In most of the cases it would be the quantity details that he would be needing. The consignee in all probability would be maintaining records for stock quantities and it would be possible to derive the information relating to unsold quantities with minimal effort.

The consignor would also be able to ascertain the information relating to quantities using the information in the account sales and his own records. This may not be the current information as it does not include the information relating to transactions at the consignee's end after the date of the last account sales.

Value of unsold stock

The need for valuation of unsold stock arises when the consignor intends to assess the profit or loss made from the consignment business, which generally would be at the end of the accounting period, when he would be ascertaining the profitability and position of his business.

The ownership of the stock consigned is with the consignor and the consignee holds the stock as an agent of the consignor. The consignee does not maintain any records regarding the values of stocks and as such obtaining the information relating to the value of the closing stock from the consignee is not a possibility.

Thus, the value of unsold stock with the consignee is assessed by the consignor by ascertaining the quantity of unsold stock and its subsequent valuation based on the principles for valuation of assets.

Recording the stock on consignment

Bringing the value of unsold stock into the books of accounts requires the relevant journal entries to be recorded.

Valuation is based on the principles for valuation of assets and recording is based on the principles of accounting.

Example

1. Unsold stock with the consignee at the beginning 12,500
2. Unsold stock with the consignee at the end 34,500

Dr/Cr - Transaction analysis

Stock on consignment is an asset that belongs to the consignor. This asset has to be a part of his assets and liabilities shown in the balance sheet prepared at the end of the accounting period.

Stock on consignment is physically not present with the consignor. Thus, it would not get accounted for at the time of assessing the value of Closing stock, relating to the trading business, for the purpose of preparation of final accounts.

Moreover, to indicate the fact that the asset i.e. stock is physically present elsewhere, the unsold stock with the consignee would be recorded through the Stock on Consignment a/c.

• Debit - Stock on Consignment a/c

  Real
  ↓
  Debit
  {what comes in}

  Recording the value of unsold stock on consignment would bring the asset into the books of accounts.

  This amounts to the real account representing the asset coming in.

• Credit - Consignment a/c

  Nominal
  ↓
  Credit
  {all incomes & gains}

  Consignment a/c is debited with the value of the goods sent on consignment as and when they are sent. This results in the consignment account being charged with an expenditure equal to the value of goods consigned.

  Consignment a/c which reveals the profit or loss on account of consignment should take as charge only the cost of goods disposed till the time the profits are being assessed. To ensure this, the value of unsold stock should be eliminated from the consignment account thereby reducing the charge on it.

  To eliminate a charge or expenditure from the Consignment a/c we credit the account. Reducing an expenditure has the same effect as earning an income.

  This is similar to crediting the Trading a/c with the Closing Stock a/c.

  Alternatively

  We can assume that we are transferring a debit balance from the Consignment a/c to another account by name Stock on Consignment a/c, thereby reducing the charge on the consignment and creating an asset.

  From	To	To Transfer	Entry
  A	B	Debit Balance	Dr. B Cr. A
  		Credit Balance	Cr. B Dr. A

Journal

Ledger

Opening Balance

Please go through the explanation below to understand the postings relating to the opening balance of 12,500.

At the end of the accounting period

The Stock on Consignment a/c at the end of an accounting period is an asset whose balance is carried forward to the subsequent accounting period through the closing entry.

In short the closing entry would be.

At the beginning of the subsequent accounting period

The Stock on Consignment a/c would be brought into the books of accounts at the beginning of the subsequent accounting period through the opening entry.

In short the opening entry would be.

Immediately after bringing the Stock on Consignment a/c into the books, its balance is transferred to the Consignment a/c.

This amounts to treating the value of unsold stock at the end of the accounting period as an asset for the purpose of the balance sheet and writing it off as an expenditure at the beginning of the subsequent accounting period.

≡ Trading a/c

This is similar to the balance of the Opening Stock a/c being transferred to the Trading a/c. Since the Trading a/c is created at the end of the accounting period, this transfer is made at the end of the accounting period.

Consignment a/c created anew

Since all nominal accounts are closed at the end of the accounting period, the Consignment a/c to which the opening balance is transferred is the account that would be newly created for the purpose of assessing the profitability of consignment business in that period. The consignment a/c affected by the transaction for recording the closing stock would have been closed at the end of the previous accounting period.

The ownership of the goods is with the consignor. He takes all the risks and returns on consignment

The consignee will not record the value of stocks, opening as well as closing, in his books of accounts.

Stock Records

The consignee would maintain records to account for the quantities of stocks.