CMA Foundation · Fundamentals of Financial and Cost Accounting · Consignment
In consignment accounting, which of the following is the correct description of the relationship between the consignor and the consignee?
The consignor and consignee stand in a principal and agent relationship. The consignee only holds and sells the goods on behalf of the consignor for a commission, so ownership stays with the consignor until the goods are sold to customers. No sale takes place on dispatch.
- ADebtor and creditor, with ownership of goods passing to the consignee on dispatch
- BPrincipal and agent, with ownership of goods remaining with the consignorCorrect
- CBuyer and seller, with risk passing to the consignee on dispatch
- DPartners sharing profit on the sale of consigned goods
Explanation
A consignee receives goods only to sell them for the consignor and is paid commission. Ownership and risk stay with the consignor until the goods are sold to a third party. Treating the consignee as a buyer is wrong because no sale occurs on dispatch.
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