Sale of Normal/Abnormal Loss Stocks

SN 19

Transaction

Normal and Abnormal loss stocks may be sold either by the consignor or the consignee. The sale realisation may have been received by them in cash or through a cheque or may be still receivable by them.

Example

Sale by the consignor

  • Normal loss (in transit) stock for cash 1,050.
  • Abnormal loss (in storage) stock for 2,200. Proceeds still receivable

Sale by the consignee

  • Normal loss (in storage) stock for 350. Proceeds still receivable.
  • Abnormal loss (in transit) stock for 2,000. Proceeds received by cheque.

Consignor's Books

Dr/Cr - Transaction analysis

Consider the Normal and Abnormal Loss Stocks to be temporary Assets which are disposed off.

Since all the risks and returns on consignment belong to the consignor, where the sale is made by the consignee, the realisation on sale is to be remitted to the consignor.

  • Debit -

    The account to be debited depends on who would made the sale or more specifically who would receive the sale proceeds .

    • Consignor receives the proceeds

      The account to be debited further depends on whether the payment has been received or not and the mode of payment.

      • Cash
        Real
        ↓
        Debit
        {what comes in}

        Cash comes in if the proceeds are received in cash

      • Cheque
        Personal
        ↓
        Debit
        {the benefit receiver}

        Proceeds would be paid into the bank, making Bank the benefit receiver

      • Buyer/Debtor
        Personal
        ↓
        Debit
        {the benefit receiver}

        Since proceeds are still receivable, the buyer would be the benefit receiver

    • Consignee receives the proceeds

      Personal
      ↓
      Debit
      {the benefit receiver}

      Consignee would be the benefit receiver.

      The mode of receipt of the proceeds by the consignee would be irrelevant here.

  • Credit - __ Loss a/c

    Depending on the loss stock being sold, the account holding the value of the loss stock is credited.

    Loss stock being sold, is going out and is thus credited.

    Note

    • Credit - Distinct Loss a/c

      To derive greater information relating to losses

    • Credit - Combined Loss a/c

      To derive lesser information relating to losses

Journal

  1. cash received for sale of normal loss (in transit) stock

    Cash a/c
    To Normal Loss a/c
    		Dr
    		 1,050
    1,050
    [For the cash received towards sale of normal loss (in transit) stock]

    • Opting to derive greater information

      Cash a/c
      To Normal Loss in Transit a/c
      		Dr
      		 1,050
      1,050

  2. sale of abnormal loss (in storage) stock, proceeds receivable

    Loss Stock Buyer a/c
    To Loss in Storage a/c
    		Dr
    		 2,200
    2,200
    [For the proceeds receivable towards sale of abnormal loss (in storage) stock]

    • Opting to derive greater information

      Loss Stock Buyer a/c
      To Abnormal Loss in Storage a/c
      		Dr
      		 2,200
      2,200

    • Opting to derive lesser information

      Loss Stock Buyer a/c
      To Abnormal Loss a/c
      		Dr
      		 2,200
      2,200

  3. sale of abnormal loss (in transit) stock by consignee

    Consignee a/c
    To Abnormal Loss a/c
    		Dr
    		 2,000
    2,000
    [For the sale of abnormal loss (in transit) stock by the consignee]

    • Opting to derive greater information

      Loss Stock Buyer a/c
      To Abnormal Loss in Transit a/c
      		Dr
      		 2,000
      2,000

    • Opting to derive lesser information

      Loss Stock Buyer a/c
      To Abnormal Loss a/c
      		Dr
      		 2,000
      2,000

  4. sale of normal loss (in storage) stock by consignee

    Consignee a/c
    To Normal Loss a/c
    		Dr
    		 350
    350
    [For the sale of normal loss (in storage) stock by the consignee]

    • Opting to derive greater information

      Consignee a/c
      To Normal Loss in Storage a/c
      		Dr
      		 350
      350

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

    Loss in Transit a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignee a/c
    2,000
    Loss in Storage a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Loss Stock Buyer a/c
    2,200
    Normal Loss a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignee a/c
    By Cash a/c
    350
    1,050
    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Loss in Transit a/c
    To Normal Loss a/c
    2,000
    350
    Loss Stock Buyer a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Loss in Storage a/c
    2,200

  • Opting to derive greater information

    Abnormal Loss in Transit a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignee a/c
    2,000
    Abnormal Loss in Storage a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Loss Stock Buyer a/c
    2,200
    Normal Loss in Transit a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignee a/c
    350
    Normal Loss in Storage a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Cash a/c
    1,050
    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Abnormal Loss in Transit a/c
    To Normal Loss in Transit a/c
    2,000
    350
    Loss Stock Buyer a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Abnormal Loss in Storage a/c
    2,200

  • Opting to derive lesser information

    Abnormal Loss a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Loss Stock Buyer a/c
    By Consignee a/c
    2,200
    2,000
    Normal Loss a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Cash a/c
    By Consignee a/c
    1,050
    350
    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Abnormal Loss a/c
    To Normal Loss a/c
    2,000
    350
    Loss Stock Buyer a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Abnormal Loss a/c
    2,200

Consignee Books

Dr/Cr - Transaction Analysis

The ownership of the goods being with the consignor, the consignee would be concerned only with and recording only those transactions where he either becomes due to the consignor or has to receive something from the consignor.

  • Debit -

    The account to be debited depends on whether the payment has been received or not and the mode of payment.

    • Cash
      Real
      ↓
      Debit
      {what comes in}

      Cash comes in if the proceeds are received in cash

    • Cheque
      Personal
      ↓
      Debit
      {the benefit receiver}

      Proceeds would be paid into the bank, making Bank the benefit receiver

    • Buyer/Debtor
      Personal
      ↓
      Debit
      {the benefit receiver}

      Since proceeds are still receivable, the buyer would be the benefit receiver

  • Credit - Consignor a/c

    The sale proceeds are to be turned over to the consignor, who would be the benefit giver.

Journal

  1. sale of abnormal loss (in storage) stock, proceeds received by cheque

    Bank a/c
    To Consignor a/c
    		Dr
    		 2,000
    2,000
    [For the sale of abnormal loss stock and the proceeds received by cheque]

  2. sale of normal loss (in storage) stock, proceeds still receivable

    Loss Stock Buyer a/c
    To Consignor a/c
    		Dr
    		 350
    350
    [For the sale of normal loss stock and proceeds still receivable]

Ledger

Consignor a/c
Dr Cr
Particulars Amount Particulars Amount



By Bank a/c
By Loss Stock Buyer a/c
2,000
350
Loss Stock Buyer a/c
Dr Cr
Particulars Amount Particulars Amount

To Consignor a/c
350

Author : The Edifier
SN 21