Consignment Accounting Entries and Ledger Accounts Explained

Understand Consignment Accounting Entries and Ledger Accounts

Key formulas to remember

Goods sent

Consignment A/c Dr; To Goods Sent on Consignment A/c

Normally use cost price. Never credit Sales. If goods are invoiced above cost, the Consignment A/c is debited at invoice price and a Stock Reserve must be created for the loading on unsold stock (see the Stock Reserve entry below).

Consignor's own expenses

Consignment A/c Dr; To Cash/Bank A/c

Freight, cartage and insurance paid by the consignor up to the consignee's godown.

Consignee's expenses and commission

Consignment A/c Dr; To Consignee's A/c

Covers non-recurring expenses up to the godown (such as unloading and octroi), recurring expenses (such as godown rent and selling expenses), plus commission. Godown rent, selling expenses and commission are not added to closing stock.

Sales by consignee

Consignee's A/c Dr; To Consignment A/c

Credit sales are also debited to the consignee's account. The consignee bears the debtors.

Advance or remittance from consignee

Cash/Bank/Bills Receivable A/c Dr; To Consignee's A/c

Reduces the amount the consignee owes.

Closing stock on consignment

Consignment Stock A/c Dr; To Consignment A/c

Value = cost of unsold goods + proportionate non-recurring expenses (consignor's and consignee's). Godown rent is not added.

Abnormal loss

Abnormal Loss A/c Dr; To Consignment A/c

Valued like stock: cost of the lost units plus a proportionate share of non-recurring expenses. It is credited to the Consignment A/c and the amount is written off to General P&L A/c. Normal loss has no separate entry; it raises the cost per unit of the remaining goods.

Stock Reserve (goods invoiced above cost)

General P&L A/c Dr; To Stock Reserve A/c

Reserve = loading on the unsold stock. It removes the unrealised profit from the profit for the year. The reserve is reversed in the next period.

Profit or loss on consignment

Profit: Consignment A/c Dr; To General P&L A/c. Loss: General P&L A/c Dr; To Consignment A/c

Balancing figure of the Consignment Account.

Closing the goods sent account

Goods Sent on Consignment A/c Dr; To Purchases (or Trading) A/c

Done at the year end.

Entries in the consignee's books

Expenses paid: Consignor's A/c Dr; To Cash A/c. Sales: Cash/Debtors A/c Dr; To Consignor's A/c. Commission: Consignor's A/c Dr; To Commission A/c. Remittance to consignor: Consignor's A/c Dr; To Cash/Bank A/c

The consignee earns commission as income and shows no stock.

Closing stock per unit adjustment

Unsold stock value = Unsold units × cost per unit + (Non-recurring expenses ÷ Total units sent) × Unsold units

Recurring selling expenses such as selling commission, godown rent and salesman pay are never added to stock.

How to solve Consignment Accounting Entries and Ledger Accounts questions

1. 1Read who is the consignor and who is the consignee. Note units sent, units sold, units unsold and units lost, if any.
2. 2Debit the Consignment Account with goods sent at cost. Add the consignor's expenses (freight, insurance).
3. 3Add the consignee's expenses (non-recurring and selling) and the commission. Show these as credits in the Consignee's Account.
4. 4Credit the Consignment Account with sales made by the consignee. Debit the same sales in the Consignee's Account.
5. 5Value closing stock: cost of unsold units plus a proportionate share of non-recurring expenses only. Credit it in the Consignment Account.
6. 6Balance the Consignment Account. The difference is profit or loss. Transfer it to General P&L Account.
7. 7Balance the Consignee's Account after adding advances or remittances. The balance is the amount due from the consignee.
8. 8If the question asks for the consignee's books, repeat from the consignee's side. Use only the Consignor's Account, commission and cash.

Quickest way: Single-line profit method for MCQs

Common mistakes in Consignment Accounting Entries and Ledger Accounts

• Crediting Sales Account when goods are sent to the consignee

  Students treat the dispatch like a normal sale.

  Fix: Goods stay with the consignor. Credit Goods Sent on Consignment Account, which later goes to Purchases or Trading Account.

• Adding all expenses to closing stock

  Students remember that expenses go into stock but forget the exact rule.

  Fix: Add only non-recurring expenses incurred up to the godown, such as freight, insurance, cartage and unloading. Godown rent, selling expenses and commission are never added.

• Debiting the Consignment Account with consignee's expenses but crediting cash

  Students forget that the consignee paid, not the consignor.

  Fix: Credit the Consignee's Account. The consignee will recover these from sale proceeds.

• Showing sales as a debit in the Consignment Account

  Students think money received is a debit.

  Fix: Sales are a credit to the Consignment Account, like income. The matching debit goes to the Consignee's Account.

• Confusing the Consignment Account with the Consignee's Account

  Both appear in the same question and both have sales in them.

  Fix: Consignment Account is nominal. It finds profit or loss. Consignee's Account is personal. It finds the amount due. They have opposite sides for sales.

• Showing stock in the consignee's books

  Students assume whoever holds goods records them.

  Fix: The consignee is only an agent. No stock, purchase or sale is recorded in its own accounts. Only the Consignor's Account and commission are recorded.

• Ignoring the Stock Reserve when goods are invoiced above cost

  Students value unsold stock at invoice price and stop there.

  Fix: Unsold stock at invoice price includes unrealised loading. Create a Stock Reserve for the loading on unsold stock so profit is not overstated.

Worked examples