CMA Foundation · Fundamentals of Financial and Cost Accounting · Consignment
Mahesh Traders of Pune sends goods to its agent in Jaipur to be sold on consignment. What is the correct journal entry in the consignor's books when the goods are despatched?
The consignor debits Consignment Account and credits Goods Sent on Consignment Account. The goods are still the consignor's property, so no sale is recorded. The credit balance is later transferred to the Purchases or Trading Account at the year end.
- AConsignee's Account Dr to Sales Account
- BConsignment Account Dr to Goods Sent on Consignment AccountCorrect
- CGoods Sent on Consignment Account Dr to Consignment Account
- DPurchases Account Dr to Consignment Account
Explanation
On despatch, the consignor debits the Consignment Account because the goods remain its own stock held by the agent. The credit goes to Goods Sent on Consignment Account, which is later transferred to Purchases or Trading Account. Crediting Sales would wrongly treat the despatch as a sale.
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