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Financial Accounting · Consignment

Consignment Meaning, Features and Key Terms

Updated 10 October 2026 · Fact-checked

Consignment is an arrangement where the consignor sends goods to an agent, the consignee, who sells them on the consignor's behalf for a commission. Ownership stays with the consignor until sale. To solve questions, identify the parties, record goods sent at cost, treat expenses correctly, and use the account sales to find profit.

Understand Consignment Basics and Key Terms

A consignment is a business arrangement in which one person, the consignor, sends goods to another person, the consignee, for sale. The consignee sells the goods as an agent, not as a buyer. The goods remain the property of the consignor until the consignee sells them to a customer.

Because the consignee is only an agent, the consignee takes no risk of ownership unless agreed otherwise. The consignee earns a commission on sales. Unsold stock lying with the consignee belongs to the consignor and is shown in the consignor's books as closing stock on consignment. The consignee does not record the goods as his own purchases or stock in his own trading account.

The consignee sends a periodic statement to the consignor called the account sales. It shows goods received and sold, sales proceeds, expenses paid by the consignee, commission, any advance paid, and the net amount due. The consignor uses it to find profit or loss on the consignment.

Del credere commission is an extra commission paid to the consignee for taking on the risk of bad debts on credit sales. If a customer fails to pay, the consignee bears the loss. Without del credere, the bad debt falls on the consignor. The consignee is then also responsible for collecting credit sales from customers.

Consignment differs from a sale, because in a sale ownership and risk pass to the buyer at once. It also differs from a joint venture, where two or more persons carry out a specific venture together and share profit or loss. In a consignment, only the consignor shares the profit; the consignee just earns commission.

Key rules to remember

Profit on consignment
Profit = Sales proceeds + Closing stock on consignment − (Cost of goods sent + Consignor's expenses + Consignee's expenses + Commission + Other costs)
Normal commission and del credere are both costs of the consignment. Add opening stock, if any, on the cost side.
Consignment cost of goods
Cost of goods sent = Cost price (or invoice price adjusted to cost) of goods
Goods sent on consignment are not a sale. Debit Consignment A/c, credit Goods Sent on Consignment A/c.
Commission
Commission = Rate % × Sales (cash plus credit unless stated otherwise)
Read the question to check whether commission applies on total sales or only on specific sales.
Del credere commission
Del credere commission = Rate % × Total sales (or credit sales only, as the question specifies)
Always follow the base given in the question. Bad debts are borne by the consignee when del credere is allowed. Do not charge bad debts to the consignment.
Consignee's amount due
Amount due to consignor = Sales proceeds − Expenses paid by consignee − Commission − Advance already paid
This is the balance shown at the end of the account sales.

How to solve Consignment Basics and Key Terms questions

Use this order for any theory or numerical question on consignment basics.

  1. 1Identify the parties: who sends the goods (consignor) and who sells them (consignee). Note the commission terms.
  2. 2Check who owns the goods. Remember that ownership stays with the consignor until sold, so no sale is recorded on dispatch.
  3. 3List all costs: cost of goods sent, freight, insurance and other consignor expenses, then the consignee's expenses and commission.
  4. 4Note whether del credere commission is allowed. If it is, do not record bad debts in the consignment account.
  5. 5Compute sales proceeds from the account sales and the value of closing stock on consignment.
  6. 6Prepare the Consignment Account, balancing it to find profit or loss, and transfer it to the Profit and Loss Account.
  7. 7For theory questions, structure the answer as definition, parties, features, then a comparison point by point.

Quickest way: Comparison table and profit check

When to use it: Use for MCQs and short theory answers where you must separate consignment from sale or joint venture.

  1. Ask three quick questions: who owns the goods, who bears the risk, and who earns what.
  2. If ownership passes at once, it is a sale. If the agent sells and earns commission, it is a consignment. If two parties share profit, it is a joint venture.
  3. For numbers, write: Sales + Closing stock − all costs = Profit.
  4. Check the del credere line first. If allowed, ignore bad debts completely.

Common mistakes in Consignment Basics and Key Terms

  • Treating goods sent on consignment as a sale.

    Goods leave the business, so it feels like a sale.

    Fix: Credit Goods Sent on Consignment A/c, not Sales A/c. Recognise revenue only when the consignee sells to customers.

  • Charging bad debts to the consignment when del credere commission is allowed.

    Students forget the purpose of del credere.

    Fix: If del credere is paid, the consignee bears bad debts. Show only the commission as a cost.

  • Calling the consignee a buyer or including consigned goods in his stock.

    Confusion between agent and buyer.

    Fix: The consignee is an agent. Unsold goods belong to the consignor and appear in his books as stock on consignment.

  • Writing that consignee and consignor share profit and loss like partners.

    Mixing consignment with joint venture.

    Fix: State that the consignee only earns commission. Profit or loss belongs to the consignor.

  • Omitting the consignee's expenses or advance from the account sales.

    Students copy only sales and commission.

    Fix: Use the full layout: sales, less expenses, commission, advance, and then net amount due.

Worked examples

Example 1

Ravi Traders, Mumbai, sent 100 units of goods costing ₹200 each to Suresh & Co., Pune, on consignment. Ravi paid freight of ₹2,000. Suresh sold 80 units at ₹300 each and is entitled to 5% commission on sales. Suresh paid selling expenses of ₹1,000. Find the profit on consignment, valuing the unsold units at cost plus their proportionate share of the consignor's freight.

Show the solution
  1. Cost of goods sent = 100 × ₹200 = ₹20,000.
  2. Consignor's freight = ₹2,000. Total cost of goods before sale = ₹22,000.
  3. Closing stock = 20 units × ₹220 (₹22,000 ÷ 100) = ₹4,400. This includes a share of freight, as freight is a cost of bringing goods to the place of sale. The consignee's selling expenses are not included in stock.
  4. Sales = 80 × ₹300 = ₹24,000.
  5. Commission = 5% × ₹24,000 = ₹1,200.
  6. Selling expenses of consignee = ₹1,000.
  7. Total debits = ₹20,000 + ₹2,000 + ₹1,000 + ₹1,200 = ₹24,200.
  8. Total credits = ₹24,000 (sales) + ₹4,400 (stock) = ₹28,400.
  9. Profit = ₹28,400 − ₹24,200 = ₹4,200.

Answer: Profit on consignment is ₹4,200.

Example 2

Meera Textiles consigned goods to Kiran Agencies, which sold goods for ₹60,000, of which ₹40,000 was on credit. Kiran is allowed 4% commission plus 1% del credere commission on total sales. A customer defaulted on ₹2,000. Because Kiran bears this bad debt under del credere, he accounts to Meera for the full sales of ₹60,000. Kiran paid expenses of ₹1,500 and had paid an advance of ₹10,000 to Meera. Find the net amount due from Kiran to Meera as per the account sales.

Show the solution
  1. Total sales to be accounted for = ₹60,000.
  2. Ordinary commission = 4% × ₹60,000 = ₹2,400.
  3. Del credere commission = 1% × ₹60,000 = ₹600.
  4. Total commission = ₹3,000.
  5. The bad debt of ₹2,000 is borne by Kiran because del credere is allowed, so it is not deducted from Meera's amount. The sales proceeds therefore stay at ₹60,000.
  6. Amount due = ₹60,000 − ₹1,500 (expenses) − ₹3,000 (commission) − ₹10,000 (advance) = ₹45,500.

Answer: The net amount due from Kiran to Meera is ₹45,500.

Exam tips

  • Write the key difference first in comparison questions: ownership, risk and relationship of the parties.
  • In MCQs, look for words like agent, commission and unsold stock to spot a consignment.
  • Always show the account sales layout with net amount due; it earns step marks.
  • Mention that bad debts go to the consignee under del credere, and to the consignor otherwise.
  • There is no negative marking in Section A, so attempt every MCQ.

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 and risk pass to the buyer at once and the seller records revenue. In a consignment, ownership stays with the consignor and the consignee is only an agent. Revenue is recognised when the consignee sells to customers.

What is the difference between consignment and joint venture?

A consignment is between a consignor and an agent who earns commission. A joint venture is between two or more co-venturers who share the profit or loss of a specific venture. A consignee does not share profit or loss.

What is del credere commission?

It is an extra commission paid to the consignee for bearing the risk of bad debts on credit sales. If it is allowed, bad debts are the consignee's loss. The consignor only bears the commission cost.

What is an account sales?

It is the statement the consignee sends to the consignor. It shows sales, expenses, commission, advances and the net amount due. The consignor uses it to prepare the consignment account.