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Fundamentals of Financial and Cost Accounting · Consignment

Consignment Basics and Key Terms Explained

Updated 10 October 2026 · Fact-checked

**Consignment** is a arrangement where the owner of goods (consignor) sends them to an agent (consignee) to sell on the owner's behalf. Ownership stays with the consignor until sale. The consignee earns commission. **Del credere commission** is extra commission for bearing the risk of bad debts on credit sales.

Understand Consignment Basics and Key Terms

Think of a publisher in Delhi who sends 500 books to a bookseller in Pune. The bookseller does not buy them. He only tries to sell them and keeps a commission. This is a consignment.

The person who sends the goods is the consignor. He is the principal and the owner. The person who receives and sells them is the consignee. He is only an agent. The goods sent are called consignment goods, and the consignor's invoice-like document for them is the proforma invoice. It is not a real sale bill. It just tells the consignee the details.

Because the consignee is only an agent, ownership and risk stay with the consignor. Unsold stock belongs to the consignor and is shown in his books. The consignee holds it and must take reasonable care. Profit or loss on the consignment belongs to the consignor. The consignee gets only his commission.

The consignee's usual commission is a fixed rate on sales. Sometimes the consignor also pays del credere commission. In return, the consignee bears losses from customers who do not pay on credit sales. So bad debts then fall on the consignee, not the consignor. This extra commission is paid on credit sales, or on total sales if the question says so. It is paid even if no bad debt occurs.

A sale is different. In a sale, ownership passes to the buyer. The buyer pays the price, bears all risks and keeps any profit. In a consignment, the consignee never gets title. When the consignee sells as agent, the consignor's title passes to the final customer.

Key formulas to remember

Consignment vs sale: ownership
Consignment: ownership with consignor | Sale: ownership passes to buyer
This is the core difference. Unsold goods with the consignee are the consignor's stock.
Relationship
Consignment: principal and agent | Sale: seller and buyer
The consignee is an agent. The buyer in a sale is not.
Consignee's remuneration
Commission = Rate % × Sales (on the base given)
Read whether commission is on total sales, credit sales or cash sales.
Del credere commission
Del credere = Rate % × Sales on which it is allowed
Usually on credit sales. It is extra to ordinary commission. The consignee then bears bad debts.
Risk of loss
Normal loss: its cost is absorbed into the cost of the remaining stock | Abnormal loss: credited to Consignment Account and charged to Profit and Loss (or the insurance claim) | Bad debts: consignor unless del credere
Normal loss is not charged separately. It raises the cost per unit of the good units left. With del credere, bad debts are not charged to the consignment.
Account maintained
Consignor: Consignment Account and Consignee's Account | Consignee: Consignor's Account
Consignor records the transaction as consignment, not as a sale.

How to solve Consignment Basics and Key Terms questions

Most basics questions ask who owns the goods, who bears which risk, or what the term means. Use this order.

  1. 1Read the question and identify who sends the goods and who sells them.
  2. 2Check whether title passes on dispatch. If goods are sent for sale on the sender's behalf, it is consignment, not sale.
  3. 3Name the roles: sender is consignor and principal, receiver is consignee and agent.
  4. 4Check who owns unsold stock. It is always the consignor in consignment.
  5. 5Identify the commission type: ordinary or del credere, and its base.
  6. 6If del credere is given, check who bears bad debts. It is the consignee.
  7. 7Match the answer to the option that uses the correct term and eliminate wrong ones.

Quickest way: Ownership and risk check

When to use it: Use this for any MCQ asking meaning, difference or who bears a loss.

  1. Ask: does the receiver pay for the goods on receipt? If no, it is consignment.
  2. Ask: who owns the goods now? Consignor in consignment.
  3. Ask: who bears bad debts? Consignor, unless del credere is paid.
  4. Eliminate options that call the consignee the owner or the buyer.
  5. Pick the option that matches your findings.

Common mistakes in Consignment Basics and Key Terms

  • Treating goods sent on consignment as a sale by the consignor.

    Goods leave the consignor's godown, so students think a sale has happened.

    Fix: Remember that ownership does not pass. Record it in the Consignment Account, not the Sales Account.

  • Saying the consignee owns unsold stock.

    The stock is physically with the consignee.

    Fix: Unsold stock is the consignor's property and is valued in his books.

  • Thinking del credere commission is paid only when bad debts occur.

    It sounds like compensation for a loss.

    Fix: It is paid for taking the risk, whether or not any bad debt happens.

  • Letting the consignor bear bad debts when del credere is allowed.

    Students forget the effect of the commission.

    Fix: With del credere, the consignee bears bad debts. Do not charge them to the Consignment Account.

  • Calling the proforma invoice a sales invoice.

    It looks like a bill with prices and quantities.

    Fix: A proforma invoice is only a statement of goods sent. It does not create a debtor for a sale.

Worked examples

Example 1

Sharma Traders of Jaipur sends 100 fans to Rao Electricals of Hyderabad to sell on Sharma's behalf at a commission of 5% on sales. Which statement is correct? (A) Rao is the owner of the fans (B) Sharma is the consignor and owns the unsold fans (C) Sharma has made a sale to Rao (D) Rao is the principal

Show the solution
  1. Sharma sends the goods to be sold on his behalf, so it is consignment.
  2. Sharma is the sender, so he is the consignor and principal.
  3. Rao is the consignee and only an agent earning commission.
  4. Ownership stays with Sharma, so unsold fans belong to him.
  5. Options A, C and D wrongly make Rao the owner, buyer or principal.

Answer: (B) Sharma is the consignor and owns the unsold fans.

Example 2

A consignee sells goods on credit for ₹2,00,000 on behalf of a consignor. He is allowed 2% del credere commission on credit sales. A customer fails to pay ₹5,000. Find the del credere commission and who bears the bad debt.

Show the solution
  1. Del credere commission = 2% × ₹2,00,000.
  2. 2 ÷ 100 × 2,00,000 = ₹4,000.
  3. Since del credere is allowed, the consignee bears the bad debt.
  4. The bad debt of ₹5,000 is the consignee's loss, not charged to the consignment.

Answer: Del credere commission is ₹4,000. The consignee bears the ₹5,000 bad debt.

Exam tips

  • Learn the four differences: ownership, risk, relationship and profit. MCQs often test one of them.
  • Read the commission base carefully. Del credere is often on credit sales only.
  • If del credere is given, do not charge bad debts to the consignment.
  • Watch the words 'sale or return' or 'sent on approval'. They are different from consignment.
  • Remember that unsold stock with the consignee is valued at cost (including proportionate direct expenses) or net realisable value, whichever is lower, and stays in the consignor's books.

Practice questions from Consignment

Consignment Basics and Key Terms in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Consignment Basics and Key Terms: frequently asked questions

What is the difference between consignment and sale?

In a sale, ownership passes to the buyer, who pays and bears the risk. In consignment, the consignee is an agent, ownership stays with the consignor and the consignee earns only commission. Unsold goods go back to the consignor.

Who is the consignor and who is the consignee?

The consignor is the owner who sends goods for sale. The consignee is the agent who receives and sells them. For example, a Delhi publisher sending books to a Pune bookseller is the consignor, and the bookseller is the consignee.

What is del credere commission?

It is an extra commission paid to the consignee for bearing the risk of bad debts on credit sales. The consignee must then bear any loss from customers who do not pay. It is paid even if no bad debt occurs.

Is the proforma invoice a sales bill?

No. It is only a statement sent by the consignor to the consignee giving details of the goods. It does not make the consignee a buyer or create a sale.