Consignment

Accounts Effected by the Transaction » Identification & Analysis:

At the end of the Current Accounting Period

• Debit »

  • 14: Stock on Consignment a/c

    The closing stock with the consignee belongs to the consignor. This implies that the value of closing stock with the consignee should be treated as an asset of the consignor at the time preparation of his Balance Sheet. For this purpose a real account by name "Stock on Consignment a/c" is created and used in the books of the consignor. This account is debited with the value of unsold stock with the consignee. 
    [Stock on Consignment a/c – Real a/c – Debit .... ]

• Credit »

  • 14: Vijayawada Consignment a/c

    The value of goods sent on consignment are charged to the consignment account (debit to consignment account implies expenditure for consignment).

    To asertain the actual expenditure in relation to the goods that have been sold, the value of closing stock has to be eliminated from the Consignment a/c. This is similar to eliminating the value of Closing Stock (physically available with the organisation) from the "Trading a/c".

    Reducing the charge on consignment account would need us to credit the consignment account. Therefore the "Consignment a/c" is credited with the value of Closing Stock with the Consignee. 
    [Consignment a/c – Nominal a/c – Credit .... ]

Note:

Alternative Explanation

At the beginning of the Subsequent Accounting Period

The debit balance in the "Stock on Consignment a/c" appearing on the assets side of the opening balance sheet is transferred to the debit side of the "Consignment a/c" at the beginning of the next accounting period. The Consignment a/c being a nominal account is created afresh for each accounting period and is closed at the end of the accounting period by transfer to the profit and loss a/c.

Transfer of a debit balance from One a/c to a Second would result in the Second a/c being debited and the first account being credited. Therefore, since a debit balance (the value of unsold stock on consignment with the consignee) is to be eliminated from the Consignment a/c it is transferred to the "Stock on Consignment a/c" resulting in a Debit in the "Stock on Consignment a/c" and a Credit in the "Consignment a/c"

• Debit » Vijayawada Consignment a/c

• Credit » Stock on Consignment a/c

There is no entry for this in the books of the consignee