CONSIGNMENT SALES
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is an arrang arrangeme ement nt where whereby by the owner owner or seller seller (consi (consign gnor) or) transf transfers ers merchandise merchandise to another party (consignee) who’ll act as seller of the goods and is entitled to reimbursement for expenses related to the consigned merchandise and is entitled to a commission when sold
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merchandise is still owned by consignor
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consig consignme nment nt expen expense se by consig consignor nor are “adde “added d costs” costs” to inven inventor tory y balance
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reimbursable expense by consignee is added to its “receivable account” and added to inventory by consignor
Transactions Ship Shipme ment nt of good goods s on consignment Payment of expenses by consignor Payment of expenses by consignee Sale of merchandise
Consignor’s books Inventory on Consignment Merchandise Inventory Inventory on Consignment Cash Inventory on Consignment Consignee Payable No entry
Consignee’s books Memorandum records are kept
Notification
Commission Expense XX Consignee Payable XX Cash XX Consignment Sales Revenue XX
XX XX XX
No entry XX
XX XX
Consignor Receivable Cash Cash Consignor Payable Consignor Payable Cash Commission Revenue Consignor Receivable
COGS * XX Inventory on Consignment Consignment XX
* COGS is proportion to the percentage of units sold to total units with the total “Inventory on consignment” consignment” Account Sales are submitted by the consignee to the consignor, together with the remittances.
Account Sales Sales Charges: Advertising Commission Commission Remittance
XX XX XX
( XX ) P XX
Illustration (a) AAA Co. consigned consigned 20 units units of merchandise, merchandise, worth 60,000 each with 100,000 sales price, to BBB C. in a 10% commission. commission. (b) AAA AAA Co. expen expensed sed 10,0 10,000 00 (c) BBB BBB Co. Co. expens expensed ed 16,0 16,000 00 (d) BBB sold sold 15 merchandis merchandise e and notifies notifies the consign consignor or
XX XX XX XX XX XX XX XX
(a) (b) (c)
Consignor Inventory on Consignment Merchandise Inventory Inventory on Consignment Cash Inventory on Consignment Consignee Payable
1,200,000 1,200,000 10,000 10,000 16,000 16,000
(d) (d)
Consignee Payable 16,000 Commission Expense 150,000 (1.5M x 10%) Cash 1,334,000 Consignment Sales Revenue 1,500,000
Consignee Memorandum record No entry Consignor Receivable Cash Cash Consignor Payable Consignor Payable Consignor Receivable Commission Revenue Cash
16,000 16,000 1,500,000 1,500,000 1,500,000 16,000 150,000 1,334,000
COGS 919,500 Inventory on Consignment 919,500 1,200,000 10,000 16,000 1,226,000 / 20 61,300 X 15 919,500
or
15 20 .78 x 1,226,000 919,500 /
Alternative Accounting Treatment for Consignment Sales – Consignment Profit Calculated Separately Consignor 1. Maintains a “Consignment Out” account. Consignment Out Shipment to consignee at cost Consignment sales * Consignor expenses Consignment loss Reimbursable consignee expenses Consignee commission Consignment Profit * When consignee expenses and commissions are not debited to CO, credit to this account represents consignee remittances instead of consignment sales. a.) For shipment Perpetual Periodic Consignment Out XX Consignment Put XX Merchandise Inventory Merchandise shipment on XX Consignment XX b.) At the end of the period, adjusting entry is made to take up consignment profit or loss with a corresponding credit (income) or debit (loss) to a temporary account “Consignment Income” c.) Determination of expenses to be allocated and not allocated to sold and unsold units is needed to determine profit or loss. Expenses to be allocated: 1. shipping cost, freight and handling cost paid by the consignor upon shipment 2. freight and cartages paid by the consignee upon receipt of the shipment 3. packing expenses related to consigned goods
4. insurance on consigned goods 5. additional cost incurred by the consignor or consignee on the consigned goods like installation of safety devices, repairs, etc.
Expenses that are directly charged to sold goods: 1. 2. 3. 4. 5.
delivery and installation commissions advertising reconditioning cost on delivered units expenses relating to returned units
Consignee 1. Maintains a “Consignment In” account. Consignment In Consignee expenses Consignee sales Commission of the consignee Remittance to the consignor a.) consignee prepares a memorandum entry upon receipt of shipment b.) commissions are recorded after recording sales by crediting the account “Commissions on Consignment” c.) entries in perpetual and periodic are the same
Illustration Transactions Shipment of consignment
goods
on
Consignor Books Consignment Out Merchandise shipment on
1,200,000 Consignment
Payment of consignor
expenses
by
Payment of expenses by consignee Sale of merchandise Commission charged by consignee Remittance of consignee to consignor
Consignment profit
1,200,000 Consignment Out
10,000 Cash
10,000 No entry No entry No entry Consignment Out Cash 1,500,000 Consignment Out
166,000 1,334,000 Consignment Out 426,500 Consignment Income
426,500 Consignment 1,500,000 Less: Cost of Goods Sold
Sales 900,000
Shipment cost 10,000 x 15/20 Advertising Commission 1,073,500 Profit 426,500
Transactions Shipment of goods consignment Payment of expenses consignor Payment consignee
of
expenses
on
Consignee Books Memo Entry
by
No entry
by
Consignment In
16,000 Cash
16,000 Cash
Sale of merchandise
Commission charged by consignee
1,500,000 Consignment
1,500,000 Consignment In Commission
Remittance consignor
of
Consignment profit
consignee
to
7,500 16,000 150,000
150,000 Consignment In
on
In
150,000 Consignment 1,334,000 Cash
1,334,000 No entry
* consignee charges are recorded by consignor by debiting Consignment Out, depending whether expenses are to be allocated or be directly charged to sold units
Alternative Accounting Treatment – Not calculated Separately Consignor 1. Consignor uses sales and expenses in recording consignment. a.) Shipment Perpetual Periodic Merchandise on Consignment XX Memo entry Merchandise Inventory XX b.) After sales, consignor record Cost of Sales in perpetual. In periodic, there will be no entry but ending inventory is set up. c.) Expenses allocated to unsold are deferred and are recording by debiting the “Merchandise on Consignment”. d.) Merchandise on Consignment balance represents inventory of consigned goods which consists of cost and deferred expenses.
Consignee 1. Consignee uses Sales, Cost of Sales, and Purchases, However it uses the name of the consignor for the expenses and remittance. a.) In shipment, the consignee prepares a memorandum entry.
b.) After recording Sales, Cost of Sales is recorded (Perpetual), or purchases (Periodic). Sales XX Less: Commission ( XX ) Cost of Sales / Purchases P XX
Illustration Transactions Shipment of goods on consignment Payment of expenses by consignor Payment of expenses by consignee Sale of merchandise Commission charged by consignee Remittance of consignee to consignor
Consignor Books Memo Shipping Cost Cash No entry No entry No entry Cash Advertising Cost Commissions Sales Merchandise on Consignment Shipping cost Income Summary
Transactions Shipment of goods on consignment Payment of expenses by consignor Payment of expenses by consignee Sale of merchandise Commission charged by consignee Remittance of consignee to consignor
Consignee Books Memo entry No entry AAA Co Cash Cash Sales No entry AAA co. Cash
10,000 10,000
1,334,000 16,000 1,500,000 32,500 7,500 295,000
16,000 16,000 1,500,000 1,500,000 1,334,000 1,334,000
