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Consignment Account Introduction - Financial Accounting - B.COM/BBA/IPCC -By Saheb Academy Video Lecture - B Com

FAQs on Consignment Account Introduction - Financial Accounting - B.COM/BBA/IPCC -By Saheb Academy Video Lecture - B Com

1. What is a consignment account in financial accounting?

Ans. A consignment account in financial accounting refers to an arrangement where one party (the consignor) sends goods to another party (the consignee) to sell on their behalf. The consignor retains ownership of the goods until they are sold, and the consignee earns a commission on each sale.

2. How does a consignment account work?

Ans. In a consignment account, the consignor sends goods to the consignee, who displays and sells the goods to customers. The consignee does not take ownership of the goods but acts as a middleman. The consignee keeps a record of the goods received, sold, and any expenses incurred. The consignor receives payment for the goods sold, and the consignee earns a commission on each sale.

3. What are the advantages of using a consignment account?

Ans. Using a consignment account has several advantages. Firstly, it allows the consignor to reach a wider market by utilizing the consignee's network. Secondly, the consignor can maintain control over their goods and reduce the risk of unsold inventory. Additionally, the consignee can earn a commission on sales, providing an incentive for them to actively promote and sell the goods.

4. What is the difference between consignment and normal sale?

Ans. The main difference between consignment and a normal sale is the ownership of the goods. In a normal sale, the buyer takes ownership of the goods immediately upon purchase. In a consignment, the consignor retains ownership of the goods until they are sold. Another difference is that in a normal sale, the seller receives the full payment for the goods, whereas in a consignment, the consignor receives payment for the goods sold after deducting the consignee's commission.

5. How is the consignee's commission calculated in a consignment account?

Ans. The consignee's commission in a consignment account is typically calculated as a percentage of the sales price. The specific percentage is agreed upon between the consignor and the consignee before the goods are sent. The commission is deducted from the sales proceeds, and the remaining amount is paid to the consignor. The commission percentage may vary depending on factors such as the nature of the goods, market conditions, and the agreement between the parties involved.

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