INTRODUCTION
Maximization of profit is the main objective of each and every business. For the fulfillment of this objective, the firm has to increase the sale of goods. For this purpose, the firm has to push its sales by all possible means. The sales can be increased by opening different branches within the territory or abroad. Opening a branch is a costlier affair. Instead of it, the business house may appoint some agents in various areas. The agent sells the goods on behalf of the sender of goods against commission.The person or firm who sends the goods is known as consignor and who receives and sells the goods on behalf and risk of the consignor is known as consignee. The goods so sent is known as consignment. Thus, consignment is the dispatch of goods by consignor to the consignee. The relationship created between the consignor and consignee is that of a principal and agent. This relationship is governed by the law of agency. The agent acts on behalf of the principal. All the expenses for goods sending and selling are borne by the consignor. The consignor is entitled to profits and bears the losses on consignment.
Thus, consignment is neither a sale by the consignor nor purchase by consignee. In other words, consignment of goods is not sale. It is mere transfer of goods from the principal to the agent.
Important Terms Used In Accounting For Consignment Of Goods
1. Consignment
The dispatch or transfer of goods to an agent for the purpose of sale on behalf and risk of principal is known as consignment
2. Consignor
The owner or principal who sends the goods to agent is known as consignor.
3. Consignee
The agent to whom the goods are sent is known as consignee.
4. Consignment Outward And Consignment Inward
The goods sent by consignor to the consignee is consignment outward. The same goods will be consignment inward for the consignee.
5. Pro-forma Invoice
It is an invoice prepared by the consignor and sent to the consignee detailing the weight or quantity and the price at which the goods are to be sold. It is an evidence of consigned goods indicating the price at or above the consignee will have to sell the goods. Though it seems as a sales invoice in format, it is quite different from it. A sales invoice is a document sent by a seller to buyer which charges the buyer with the value of goods.
6. Account Sales
The consignee has to inform its consignor about sale and expenses incurred by him for selling activity. For this purpose, the consignee has to prepare a statement which is known as account sale. An account sale is a statement of sales and other expenses incurred by the consignee while performing sale. It can be taken as a base of consignor's books of account for recording sales and expenses incurred by the consignee for selling the consigned goods.
The dispatch or transfer of goods to an agent for the purpose of sale on behalf and risk of principal is known as consignment
2. Consignor
The owner or principal who sends the goods to agent is known as consignor.
3. Consignee
The agent to whom the goods are sent is known as consignee.
4. Consignment Outward And Consignment Inward
The goods sent by consignor to the consignee is consignment outward. The same goods will be consignment inward for the consignee.
5. Pro-forma Invoice
It is an invoice prepared by the consignor and sent to the consignee detailing the weight or quantity and the price at which the goods are to be sold. It is an evidence of consigned goods indicating the price at or above the consignee will have to sell the goods. Though it seems as a sales invoice in format, it is quite different from it. A sales invoice is a document sent by a seller to buyer which charges the buyer with the value of goods.
6. Account Sales
The consignee has to inform its consignor about sale and expenses incurred by him for selling activity. For this purpose, the consignee has to prepare a statement which is known as account sale. An account sale is a statement of sales and other expenses incurred by the consignee while performing sale. It can be taken as a base of consignor's books of account for recording sales and expenses incurred by the consignee for selling the consigned goods.
Difference Between Consignment And Sales
Consignment can not be treated as sales of goods. It is different from sales. The difference between consignment and sales are as follows:
1. Ownership
Consignment: The ownership of the goods remains with the consignor until sales is effected by the consignee.
Sales: The ownership of the goods immediately transferred to the buyer when sale is effected.
2. Relationship
Consignment: The relationship between the consignor and consignee are of principal and agent. Their relation ship are continued till terminated.
Sales: The relationship between the two parties are that of seller and buyer and they terminated as soon as payment is made and goods are delivered.
3. Expenses
Consignment: The expenses incurred by the consignee to execute sale and the expenses incurred by consignor to send the goods to the consignee, both are borne by the consignor.
Sales: Any expenses incurred after the sale is not borne by the seller.
4. Risk
Consignment: The risk of goods under consignment is always with the consignor.
Sales: When the sale is made the risk is transferred to the buyer.
5. Return Of Goods
Consignment: Consignee can return goods to the consignor since those are properties of consignor.
Sales: A buyer can not return goods unless the goods are found defective or damaged or the seller agrees to.
6. Statement
Consignment: For giving details about the goods sold and expenses incurred by him, consignee sends the account sales to consignor.
Sales: The buyer need not submit any account sales to the seller.
7. Stock
Consignment: The unsold stock with the consignee will be treated as a stock of the consignor.
Sales: In case of sale, the buyer's unsold stock do not attract the seller.
8. Commission
Consignment: Commission is the main consideration of consignment. The consignee performs the selling activity only for commission.
Sales: Profit is the main consideration of sales.
1. Ownership
Consignment: The ownership of the goods remains with the consignor until sales is effected by the consignee.
Sales: The ownership of the goods immediately transferred to the buyer when sale is effected.
2. Relationship
Consignment: The relationship between the consignor and consignee are of principal and agent. Their relation ship are continued till terminated.
Sales: The relationship between the two parties are that of seller and buyer and they terminated as soon as payment is made and goods are delivered.
3. Expenses
Consignment: The expenses incurred by the consignee to execute sale and the expenses incurred by consignor to send the goods to the consignee, both are borne by the consignor.
Sales: Any expenses incurred after the sale is not borne by the seller.
4. Risk
Consignment: The risk of goods under consignment is always with the consignor.
Sales: When the sale is made the risk is transferred to the buyer.
5. Return Of Goods
Consignment: Consignee can return goods to the consignor since those are properties of consignor.
Sales: A buyer can not return goods unless the goods are found defective or damaged or the seller agrees to.
6. Statement
Consignment: For giving details about the goods sold and expenses incurred by him, consignee sends the account sales to consignor.
Sales: The buyer need not submit any account sales to the seller.
7. Stock
Consignment: The unsold stock with the consignee will be treated as a stock of the consignor.
Sales: In case of sale, the buyer's unsold stock do not attract the seller.
8. Commission
Consignment: Commission is the main consideration of consignment. The consignee performs the selling activity only for commission.
Sales: Profit is the main consideration of sales.
0 comments:
Post a Comment