Meaning of Consignment
Consignment is a business arrangement in which goods are sent by one person (the consignor) to another person (the consignee) for the purpose of selling them on behalf of the consignor. Ownership of goods remains with the consignor until the consignee sells them. The consignee acts as an agent and earns commission for selling the goods.
The consignee is not the owner of goods. He holds the goods, sells them, incurs selling expenses and remits the amount to the consignor after deducting his commission and expenses.
Journal Entries in the Books of the Consignor
| Transaction | Journal Entry (Consignor) |
|---|---|
| Goods sent on consignment | Consignment A/c Dr. → To Goods Sent on Consignment A/c |
| Expenses incurred by consignor (e.g., packing, carriage) | Consignment A/c Dr. → To Cash/Bank A/c |
| Expenses paid by consignee (non-recurring) | Consignment A/c Dr. → To Consignee A/c |
| Commission payable to consignee | Consignment A/c Dr. → To Consignee A/c |
| Sales made by consignee | Consignee A/c Dr. → To Consignment A/c |
| Closing stock with consignee | Closing Stock on Consignment A/c Dr. → To Consignment A/c |
| Profit on consignment | Consignment A/c Dr. → To Profit & Loss A/c |
| Loss on consignment | Profit & Loss A/c Dr. → To Consignment A/c |
| Amount received from consignee | Bank/Cash A/c Dr. → To Consignee A/c |
Journal Entries in the Books of the Consignee
| Transaction | Journal Entry (Consignee) |
|---|---|
| Goods received on consignment | No entry (as goods are not owned) |
| Expenses incurred by consignee | Consignor A/c Dr. → To Cash/Bank A/c |
| Commission earned | Consignor A/c Dr. → To Commission A/c |
| Sales made | Cash/Bank/Debtors A/c Dr. → To Consignor A/c |
| Remittance to consignor | Consignor A/c Dr. → To Cash/Bank A/c |
Conclusion
Consignment is an important branch of accounting involving principal–agent relationship. The consignor records goods, expenses, commission and profit/loss in the Consignment Account, whereas the consignee only records expenses, sales and commission. Proper journal entries ensure accurate computation of consignment profit and settlement between consignor and consignee.