Consignment in Accounting Transactions and Events | Consignment Account Journal and Ledger Entries

Consignment in accounting refers to a business arrangement where a consignor entrusts goods to a consignee for sale, while retaining ownership of the goods until they are sold. This arrangement is commonly used in various industries such as retail, art, antiques, and fashion.

In the United States, the accounting treatment of consignment transactions follows generally accepted accounting principles (GAAP). Here's a detailed explanation of consignment accounting, along with some examples:

1. Consignment Agreement:

   The consignment process begins with a consignment agreement between the consignor and the consignee. This agreement outlines the terms and conditions of the consignment, including the consignee's commission percentage, the date of consignment, any conditions on sales, and other relevant terms. The consignment agreement serves as legal evidence of the consigned goods' dispatch.

Example: A clothing manufacturer (consignor) enters into a consignment agreement with a boutique (consignee) to sell their products. The agreement specifies that the boutique will receive a 30% commission on sales and outlines other relevant terms.

2. Recording the Goods Sent on Consignment:

   When the goods are sent from the consignor to the consignee, it is not considered a sale because the consignor still retains ownership. The consignor records the transaction as follows:

   Consignment Account      Dr.

   To Goods Sent on Consignment Account

Example: The clothing manufacturer records the transaction as follows:

   Consignment Account      Dr.       $10,000

   To Goods Sent on Consignment Account   $10,000

   This entry increases the value of the Consignment Account and represents the goods sent to the consignee.

3. Incurred Expenses by the Consignor:

   If the consignor incurs any expenses related to sending the goods to the consignee, those expenses are recorded as follows:

   Consignment Account      Dr.

   To Cash/Bank/Supplier Account

Example: The clothing manufacturer incurs shipping expenses of $500 while sending the goods to the boutique. The entry would be:

   Consignment Account      Dr.       $500

   To Cash/Bank/Supplier Account   $500

4. Sales of Goods by the Consignee:

   When the consignee sells the goods, they record the sales transaction in their books. From the consignor's perspective, the entry is:

   Consignee's Personal Account      Dr.

   To Consignment Account

Example: The boutique sells clothing worth $8,000 from the consignment. The entry recorded by the clothing manufacturer is:

   Consignee's Personal Account      Dr.       $8,000

   To Consignment Account                          $8,000

   This entry recognizes the reduction in inventory (Consignment Account) and increases the amount owed by the consignee (Consignee's Personal Account).

5. Consignee Incurred Expenses:

   If the consignee incurs any expenses related to the sales or maintenance of the goods, the consignor is responsible for paying those expenses. The entry recorded by the consignor is:

   Consignment Account      Dr.

   To Consignee Personal Account

Example: The boutique incurs advertising expenses of $300 for promoting the consigned clothing. The clothing manufacturer records the following entry:

   Consignment Account      Dr.       $300

   To Consignee Personal Account      $300

6. Commission Paid to Consignee:

   When the consignor pays the consignee's commission, the entry depends on whether a Del-Credere commission is involved or not.

   When Del-Credere Commission is not paid:

   Consignment Account       Dr.

  

 To Consignee's Personal Account

   When Del-Credere Commission is paid:

   Consignee's Personal Account       Dr.

   To Consignment Account

Example: If the consignor pays a commission of $500 to the boutique without any Del-Credere commission, the entry would be:

   Consignment Account       Dr.       $500

   To Consignee's Personal Account   $500

7. Unsold Goods with the Consignee:

   If there are unsold goods remaining with the consignee, they are recorded separately in a Consignment Stock Account. The entry to record the unsold goods is:

   Consignment Stock Account     Dr.

   To Consignment Account

Example: If $2,000 worth of clothing remains unsold with the boutique, the clothing manufacturer records the entry as follows:

   Consignment Stock Account     Dr.       $2,000

   To Consignment Account                           $2,000

   This entry recognizes the reduction in inventory (Consignment Account) and establishes a separate account for the unsold goods (Consignment Stock Account).

These examples illustrate the general accounting entries involved in consignment transactions. However, it's important to note that specific circumstances and business practices may require additional or modified entries. Consulting with a professional accountant or referring to relevant accounting standards is recommended for accurate and specific guidance regarding consignment accounting in the United States.