Though of a lesser possibility, goods may be returned by the buyers to the consignor directly. This may be the case where the consignor is nearer to the buyers place.

This transaction has to be viewed as the net effect of two distinct transactions.

• Sales Returns

  Return of goods by the customer to the consignee

  The customer would be entitled to a refund and the amount due from the consignee or consignment debtors to the consignor would get reduced. The transaction value would be the value at which goods have been sold.

• Goods Returns

  Return of goods by the consignee to the consignor

  The value of goods consigned would get reduced. The transaction value would be the value at which goods have been consigned.

Example

Goods costing 3,000 sold for 4,000 were returned by M/s SW Traders to the consignor directly.

Dr/Cr - Transaction analysis

1. Sales Returns

   The consignment income, from sales, and the amount due from the consignment debtors would get reduced to the extent of the return.

   • Credit - Consignment Debtors a/c

     Personal
     ↓
     Credit
     {the benefit giver}

     The consignment debtor returning the goods would be the benefit giver.

     Debtors account with a debit balance is credited to reduce the amount due from them.

     Note

     • To derive greater information

       Credit - Individual Consignment Debtor a/c

       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.

     • To derive lesser information

       Credit - Consignee a/c

       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 - Consignment a/c

     Nominal
     ↓
     Debit
     {all expenses & losses}

     A reduction in sales has the same affect as an expense.

   Note

   • This transaction is a reverse of the transaction of credit sale.
   • The transaction value would be the value at which goods have been sold.

2. Goods Returns

   The value of goods consigned as well as the expenditure incurred for consignment on account of goods consigned would get reduced.

   • Debit - Goods sent on Consignment a/c

     Nominal
     ↓
     Debit
     {all expenses & losses}

     Goods sent on Consignment a/c carries a credit balance which represents the expenditure that has to be moved away or reduced from the trading account. Reducing an expenditure has the same affect as earning an income. Thus, the balance represents an income. Reducing the balance in the Goods sent on Consignment a/c would therefore amount to reducing an income, which has the same affect as incurring an expenditure.

     Goods sent on Consignment a/c, has a credit balance, which represents the value of goods consigned during the current accounting period. Since goods are being returned, the value of goods consigned would have to be reduced, which is achieved by debiting the Goods sent on Consignment a/c with the value of goods returned.

   • Credit - Consignment a/c

     Nominal
     ↓
     Credit
     {all incomes & gains}

     The charge on the consignment a/c is reduced by crediting the Consignment a/c.

     A reduction in expenditure is an equivalent of an increase in income.

   Note

   • This transaction is a reverse of the transaction of goods consigned.
   • The transaction value would be the value at which goods have been consigned.

Journal

1. sale returns 4,000.

   Consignment a/c To Consignment Debtor a/c	Dr	4,000	4,000
   [For the value of sales returned by the consignment debtor]

   • Opting to derive greater information

     Consignment a/c To SW Traders a/c

     Dr

     4,000

     4,000

   • Opting to derive lesser information

     Consignment a/c To Consignee a/c

     Dr

     4,000

     4,000

2. goods returned 3,000.

   Goods sent on Consignment a/c To Consignment a/c	Dr	3,000	3,000
   [For the value of goods returned by the consignment debtor]

Ledger

Consignment a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To Consignment Debtors a/c	4,000	By Goods sent on Consignment a/c	3,000

Goods sent on Consignment a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To Consignment a/c	3,000

Additionally, 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 Consignment a/c	4,000

• Opting to derive greater information

  SW Traders a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Consignment a/c	4,000

• Opting to derive lesser information

  Consignee a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  		By Consignment a/c	4,000

Since both the transactions are to be recorded at the same time, a journal entry for the net effect of the transactions may also be recorded.

	Consignment	Goods sent on Consignment	Consignment Debtors
1) 2)	+4,000 −3,000	+3,000	−4,000
Net	+1,000	+3,000	−4,000
Dr(+)/Cr(−)

Journal

1. sales returns 4,000 and goods returned 3,000.

   Consignment a/c Goods Sent on Consignment a/c To Consignment Debtors a/c

   Dr Dr

   1,000 3,000

   4,000

Ledger

Consignment a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To Consignment Debtors a/c	1,000

Consignment Debtors a/c

Dr Cr
Particulars	Amount	Particulars	Amount
		By Consignment a/c By Goods sent on Consignment a/c	1,000 3,000

Goods sent on Consignment a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To Consignment Debtors a/c	3,000

Though the net balance in all the accounts would be the same, the postings in the ledger accounts would not provide the appropriate information relating to the reasons for the postings.

The consignee does not record the value of goods received and thus does not record the value of goods returned.

He would however be concerned with the transaction relating to sales returns.

Dr/Cr - Transaction analysis

• Debit - Consignor a/c

  Personal
  ↓
  Debit
  {the benefit receiver}

  Since the sales value, at the time of sale, has been considered as amount due to the consignor, it should be written back as no longer due.

  The consignor being the owner of the goods returned, would be the benefit receiver.

• Credit - SW Traders a/c

  Personal
  ↓
  Credit
  {the benefit giver}

  Since the goods are being returned, the sales value has to be refunded.

  The consignment debtor returning the goods, would be the benefit giver.

  Note

  • To derive lesser information

    Credit - Consignment Debtors a/c

    Where individual account for the consignment debtors are not maintained in the books, the sales would have been recorded as

    Consignment Debtors a/c To Consignor a/c

    Dr

    —

    —

    In such a case, the returns would influence the Consignment Debtors a/c.

Journal

1. sales returns 4,000

   Consignor a/c To SW Traders a/c	Dr	4,000	4,000
   [For the value of sales returned by SW Traders by returning goods to the consignor]

   • For lesser information

     Consignor a/c To Consignment Debtors a/c

     Dr

     4,000

     4,000

Ledger

Consignor a/c

Dr Cr
Particulars	Amount	Particulars	Amount
To SW Traders	4,000

Additionally, 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

  SW Traders a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Consignor	4,000

• If deriving lesser information

  Consignment Debtors a/c

  Dr Cr
  Particulars	Amount	Particulars	Amount
  To Consignor	4,000