CONSIGNMENT ACCOUNTS

CONSIGNMENT ACCOUNTS
In today's world of business, every manufacturer or exporter or wholesaler tries his best to sell his products in his own country and abroad to a larger extent. But it is not an easy task, because a businessman cannot have the exact information about the demand of his product in different parts of the country and abroad. There are two methods by which businessmen can increase the sale of their products, (1) by opening their own branches in different parts of the country and abroad (2) by appointing agents in their own country as well as abroad. The first method is very expensive because a large sum of money is spent on the establishment of a branch and a number of persons are required as, manager, clerks, accountant etc. to carry out different operations of the branch. Inspite of spending such a heavy amount, the branch may prove un-successful or the profit earned by the branch may be very small as compare to the amount invested in the branch.
So far as the second method is concerned, the manufacturer or wholesaler just appoints an agent who sells goods on behalf and on the risk of the former. The agent is paid commission which is generally a percentage of sales made by him. This is comparatively a cheaper method by which sales can be promoted. This arrangement proves very useful due to the knowledge of the agent of the local conditions. The agent will try to sell the goods in the best possible manner and will remit the sale proceeds of the goods after deducting expenses and his own commission to the manufacturer or wholesaler.
Consignment is an act of sending the goods by the owner (manufacturer or whole sailer) to his agent, who agrees to collect, store and sell them on the risk and behalf of the owner on commission basis. The manufacturer or wholesaler who sends his good for sale is known as 'Consignor' and the person to whom the goods are sent is known as the 'Consignee*. The relationship between consignor and consignee is that of 'Principal and Agent* and not that of seller and buyer. It should be noted, carefully, that the consignee is not the buyer, he merely possesses the goods on behalf of the consignor. He is liable to make the payment to the consignor only to the extent the goods he has sold. Unsold goods belong to the consignor and are held by the consignee at the risk of the consignor.
When goods are dispatched by the consignor to the consignee, it will be a 'Consignment Outward' from consignor's view point and 'Consignment Inward' from consignee's view point.
A consignor may have a number of agents in different parts of the country or abroad to whom he sends good for sale. So, it will be very useful for him to maintain a separate subsidiary register (journal) with a view to keep full record of the goods consigned. This special register is named as 'Consignment Outward Book or Journal'. Accounting treatment of this book is similar to that of a sales book. On the other hand, a consignee may have a number of consignors from whom he receives goods for sale, so it will be very convenient for him to maintain a separate subsidiary register named as 'Consignment Inward Book'. However for solving the problems in the examination Journal is used for recording consignment transactions.
When goods are sent by the consigner to the consignee, he has to incurred some expenses on the goods consigned, such as carriage, dock dues, import duty, transportation, godown rent, Insurance etc. It should be remembered that generally all the expenses either paid by the consignor himself or by the consignee are borne by the consignor. The consignee will neither bear any expense or loss nor he will share iie profit made on the sale of goods. He will just receive his commission from the consignor.