Consignment Accounting

Consignment accounting refers to the accounting process involved in recording and reporting transactions related to consignments. A consignment is an arrangement where one party (the consignor) sends goods to another party (the consignee) to sell on their behalf. The consignee does not own the goods but is responsible for selling them and returning the proceeds, minus any agreed-upon expenses or fees, to the consignor.

Recording the Transaction

The first step in consignment accounting is recording the transaction. In this case, Ram Swaroop Maloof Turmeric Mill consigned 400 quintals of turmeric to Nathumal of Gulbarga at Rs. 300 per quintal on July 1, 2020. The consignor paid Rs. 6,000 towards freight and insurance.

The journal entry to record this transaction would be:

Consignment A/C Dr. 1,20,000
To Sales A/C 1,20,000
(Being goods consigned by Ram Swaroop Maloof Turmeric Mill to Nathumal of Gulbarga)

In this entry, the consignment account is debited for the value of the goods sent on consignment, and the sales account is credited for the same amount. The consignment account is a nominal account, while the sales account is a real account.

Calculating Commission and Expenses

The next step in consignment accounting is calculating the commission and expenses incurred by the consignee. These expenses may include:

- Freight and insurance
- Storage and handling charges
- Advertising and promotional expenses
- Commission on sales

In this case, Nathumal of Gulbarga sold all 400 quintals of turmeric at Rs. 350 per quintal. The commission agreed upon was 5% on sales, and Nathumal incurred Rs. 4,000 towards storage and handling charges.

The commission and expenses are calculated as follows:

Total Sales = 400 x 350 = Rs. 1,40,000
Commission = 5% of Total Sales = 5/100 x 1,40,000 = Rs. 7,000
Expenses = Rs. 6,000 (Freight and Insurance) + Rs. 4,000 (Storage and Handling) = Rs. 10,000

Settlement of Accounts

The final step in consignment accounting is settling the accounts between the consignor and consignee. The consignee is required to remit the proceeds of the sale, minus any agreed-upon expenses or fees, to the consignor.

In this case, the settlement of accounts would be as follows:

Total Sales = Rs. 1,40,000
Commission = Rs. 7,000
Expenses = Rs. 10,000
Net Proceeds = Total Sales - Commission - Expenses = Rs. 1,23,000

The journal entry to record the remittance of the net proceeds to the consignor would be:

Nathumal's A/C Dr. 1,23,000
To Consignment A/C 1,23,000
(Being the remittance of net proceeds to Ram Swaroop Maloof Turmeric Mill)

In this entry, Nathumal's account is debited for the remittance amount, and the consignment account is credited for the same amount. The