Bad Debts, Discounts allowed - unrealised sale proceeds from Consignment Debtors

SN 24

Unrealised Sale Proceeds

The consignee would make sales on credit. The amount due from those who have purchased the stock on credit from the consignee identified as Consignment Debtors will be collected by the consignee. There is also a possibility for the consignment debtors to pay the consignor directly.

Sale proceeds can be considered unrealised when there is a difference between the amount due from the consignment debtor and the actual amount collected.

  • Discount Allowed

    This would be a discount given from the amount due from the consignment debtor. This is different from the discount in sale price given at the time of sale.

    Discount may be given for timely or regular payments. It may have to be given on account of slackness in the quality of the goods sold which is identified subsequent to sale, which though termed a discount, amounts to reduction in selling price.

    Who bears the loss

    The loss on account of discounts given in relation to the debtors paying up their dues, inferior quality of stock, etc., are losses of normal nature and should be borne by the business i.e. the consignor.

    We assume that the loss on account of discount given would be borne by the consignor, unless otherwise specified and that the consignee would be giving such discounts with the consent of the consignor.

  • Bad Debts

    If consignment debtor does not pay or is unable to pay the debt due and the consignee is unable to collect the due even after making appropriate efforts, the debt becomes bad.

    Who bears the loss

    The loss on account of bad debts is to be borne by the consignor or the consignee depending on the agreement made between them. Consignee in receipt of delcredere commission is an indicator of such an agreement.

    Consignee receiving Del Credere commission

    Where the consignee is in receipt of Del credere commission he would be responsible for the collection of the dues from the consignment debtors and thus would have to bear the loss on account of bad debts.

    Consignee not receiving Del Credere commission

    Where the consignee is not in receipt of Del credere commission he would not be responsible for the non payment of dues by the consignment debtors and thus the consignor would have to bear the loss on account of bad debts.

    Not that the consignee would not take any responsibility for the collection of dues, but that he would not bear any loss on account of the consignment debtors not paying up.

Transaction

Example

  • discount allowed to M/s SW Traders 1,200
  • 1,500 unrealised from M/s IM Brothers, to be borne by the consignor
  • Bad Debts 800 relating to M/s SW Traders to be borne by the consignee

Consignor Books

Dr/Cr - Transaction analysis

A debit balance equal to the discount or bad debt ascertained would be transferred from the consignment debtors account to the consignee account if the consignee is to bear the loss or the consignment account if the consignor has to bear the loss.

  • Credit - Consignment Debtors a/c

    Personal
    ↓
    Credit
    {the benefit giver}

    The consignment debtors account is cleared to the extent of the amount of the transaction. This has the same affect as the consignment debtor making a payment and clearing the due which makes him the benefit giver.

    Note

    Where the other related transactions are recorded accordingly,

    • Credit - Individual Consignment Debtor a/c

      To derive greater information

    • Credit - Consignee a/c

      To derive lesser information

      Where the debit is also to be made to the consignee, there would be no entry.

  • Debit -

    The account to be debited is dependent on who bears the loss.

    • Consignee a/c (Loss borne by the consignee)

      Personal
      ↓
      Debit
      {the benefit receiver}

      The consignee is considered to have received the benefit and is thus made due to the extent of the amount of the transaction.

      Where the credit is also to be made to the consignee, there would be no entry.

    • Consignment a/c (Loss borne by the consignor)

      Nominal
      ↓
      Debit
      {all expenses & losses}

      Discount allowed and Bad Debts would amount to losses.

      The consignment debtor account would be written off to the extent of the loss and the loss would be absorbed by the consignment account.

No Entry

Where the credit sales have been recorded by making the consignee the debtor earlier, and the loss is to be borne by the consignee, there would be no entry.

Consignee a/c
To Consignment a/c
Dr

Journal

  1. discount allowed to consignment debtors 1,200

    Consignment a/c
    To Consignment Debtors a/c
    		Dr
    		 1,200
    1,200
    [For discount allowed to M/s SW Traders]

    • Opting to derive greater information

      Consignment a/c
      To SW Traders a/c
      		Dr
      		 1,200
      1,200

    • Opting to derive lesser information

      Consignment a/c
      To Consignee a/c
      		Dr
      		 1,200
      1,200

  2. 1,500 unrealised from M/s IM Brothers

    Consignment a/c
    To Consignment Debtors a/c
    		Dr
    		 1,500
    1,500
    [For the bad debt on account of unrealised consignment debtors]

    • Opting to derive greater information

      Consignment a/c
      To SW Traders a/c
      		Dr
      		 1,500
      1,500

    • Opting to derive lesser information

      Consignment a/c
      To Consignee a/c
      		Dr
      		 1,500
      1,500

  3. consignment bad debts 800, to be borne by the consignee

    Consignee a/c
    To Consignment Debtors a/c
    		Dr
    		 800
    800
    [For the loss on account of bad debts to be borne by the consignee]

    • Opting to derive greater information

      Consignee a/c
      To SW Traders a/c
      		Dr
      		 800
      800

    • Opting to derive lesser information

      Since both the debit and credit are to be made to the same account, there would be no entry for this transaction.

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 a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignment Debtors a/c
    To Consignment Debtors a/c
    1,200
    1,500

    Consignment Debtors a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignment a/c
    By Consignment a/c
    By Consignee a/c
    1,200
    1,500
    800
    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignment Debtors a/c
    800

  • Opting to derive greater information

    Consignment a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To SW Traders a/c
    To IM Brothers a/c
    1,200
    1,500

    SW Traders a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignment a/c
    By Consignee a/c
    1,200
    800
    IM Brothers a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignment a/c
    1,500
    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To SW Traders a/c
    800

  • Opting to derive lesser information

    Consignment a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignee a/c
    To Consignee a/c
    1,200
    1,500

    Consignee a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignment a/c
    By Consignment a/c
    1,200
    1,500

Consignees Books

Dr/Cr - Transaction analysis

A debit balance equal to the discount or bad debt ascertained would be transferred from the consignment debtors account to the consignor account if the consignor is to bear the loss or the consignment losses account if the consignee has to bear the loss.

  • Credit - Individual Consignment Debtor a/c

    Personal
    ↓
    Credit
    {the benefit giver}

    The consignment debtors account is cleared to the extent of the amount of the transaction. This has the same affect as the consignment debtor making a payment and clearing the due which makes him the benefit giver.

    Note

    Where the other related transactions are recorded accordingly,

    • Credit - combined Consignment Debtors a/c

      To derive lesser information

  • Debit -

    The account to be debited is dependent on whether it is the consignor or the consignee who would bear the loss.

    • Consignor a/c (Loss borne by the consignor)

      Personal
      ↓
      Debit
      {the benefit receiver}

      The consignor is considered to have received the benefit and thus the amount due to him is reduced to the extent made of the amount of the transaction.

    • Consignment Bad Debts a/c (Loss borne by the consignee)

      Nominal
      ↓
      Debit
      {all expenses & losses}

      A distinct account with a name like Consignment Bad Debts (or Consignment Discounts) may be maintained to derive the information relating to such losses.

      Note

      • Credit - Delcredere Commission a/c

        To derive lesser information

        Where the loss is on account of bad debts and the consignee is in receipt of del credere commission which is specifically earned for ensuring that there would be no such losses, it may be debited to delcredere commission account thereby reducing the delcredere commission account balance to net after setting off such losses.

Journal

  1. discount allowed to M/s SW Traders 1,200

    Consignor a/c
    To SW Traders a/c
    		Dr
    		 1,200
    1,200
    [For discount allowed to M/s SW Traders]

    • Opting to derive lesser information

      Consignor a/c
      To Consignment Debtors a/c
      		Dr
      		 1,200
      1,200

  2. 1,500 unrealised from M/s IM Brothers, to be borne by the consignor

    Consignor a/c
    To IM Brothers a/c
    		Dr
    		 1,500
    1,500
    [For the bad debt on amount unrealised from IM Brothers]

    • Opting to derive lesser information

      Consignor a/c
      To Consignment Debtors a/c
      		Dr
      		 1,500
      1,500

  3. Bad Debts 800 relating to M/s SW Traders, to be borne by the consignee

    Consignment Bad Debts a/c
    To Consignment Debtors a/c
    		Dr
    		 800
    800
    [For the loss on account of bad debts to be borne by the consignee]

    • Opting to derive lesser information

      Delcredere Commission a/c
      To Consignment Debtors a/c
      		Dr
      		 800
      800

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
    1,200
    1,500

    SW Traders a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignor a/c
    By Consignment Bad Debts a/c
    1,200
    800
    IM Brothers a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignor a/c
    1,500
    Consignment Bad Debts a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignment Debtors a/c
    800

  • Opting to derive lesser information

    Consignor a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignment Debtors a/c
    To Consignment Debtors a/c
    1,200
    1,500

    Consignment Debtors a/c
    Dr Cr
    Particulars Amount Particulars Amount



    By Consignor a/c
    By Consignor a/c
    By Delcredere Commission a/c
    1,200
    1,500
    800
    Delcredere Commission a/c
    Dr Cr
    Particulars Amount Particulars Amount

    To Consignment Debtors a/c
    800

Author : The Edifier
SN 26