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Meaning and Features of consignment
Meaning of consignment
If the goods are sent by the owner of the goods or by the sender or by the principal to his agent or representative for the purpose of selling the goods on a commission basis, it is called consignment.
The goods are owned by the sender itself, the risk lies with the owner and the sender is responsible for the profit and loss, the remaining goods are the rights of the sender.
The agent is commissioned as remuneration for his services.
The person who owns the goods and appoints the agent is called the consignor or head.
The person who sells goods on a commission basis and whom the sender appoints is called a representative or agent or consignee.
Features Of Consignment
- The goods are owned by the consignor.
- The agent gets a commission as a result of his services.
- The consignoris responsible for profit and loss.
- The agent or consignee acts as per the orders of the Principal.
- Sales details are sent to the sender by the agent.
- The principal receives some advance from the consignee or agent.
- Payment of expenses made by the agent by the consignor or head.
- Returning of unsold goods by the representative to the consignor.
- After the sale of goods, the agent sends the balance to the consignor.
- The consignor is sent to the agent by making an invoice or raw invoice for information
- It is the duty of the consignee to take proper care of the goods and is responsible for any damage to the goods due to the negligence of the consignee.
- The consignee has no responsibility before the goods are sold.
- The consignor sends the goods agent for the purpose of sale without receiving a price.
Principal or Consignor –
The person who owns the goods appoints the agent, bears the risk and is responsible for the work done by the agent, and is responsible for profit and loss, is called consignor or principal.
Consignee or representative or agent –
The person who is appointed by the consignor to sell the goods on a commission basis, the sender or representative or agent or invoice is called. The sender sells goods on behalf of the sender. The sender does not have the responsibility of profit or loss.
Consignment Stock –
The consignment stock that is left out of the agent after a certain period or at the end of the business year is called the consignment stock.
Out of the goods sent on remittance, the goods which remain from the sale of the consignee are called remittances. It is necessary to evaluate the remittance wing to determine the profit or loss of remittances. The remittance stock is valued at a price that is lower in both the market price and the cost price, it is also called the stock with the agent.
The following points are kept in mind while evaluating Consignment Stock-
- The quantity of the remaining goods is first determined.
- After this, the cost price of the remaining goods is determined.
- A proportional levy is added to the cost price of the remaining goods, all direct expenses incurred by the consignor.
- A proportionate portion of the expenses of the consignee to the warehouse is added to the cost price of the remaining goods.
- The expenses of the consignor are added to the calculation of the Consignment stock – packing of goods, railways, insurance expenses, octroi expenses, and other direct expenses, etc.
- Consignee expenses that are added to the calculation of Consignment stock – freight expenditure, octroi, freight to the warehouse and other direct expenses, etc.
- Normal loss is also taken into consideration while calculating the Consignment stock.
- The abnormal loss is also taken into consideration while calculating the Consignment stock.
Proforma Invoice –
The invoice is made by the owner of the goods or by the sender and sent to his agent or representative called the proforma invoice. It is also called an invoice for information. In it, the nature, quantity, price, etc. of the goods sent are given.
Sometimes this invoice also states the proposed selling price of the consignment, which is called the Invoice Price. The invoice value is determined by adding the estimated profit to the cost price.
Also Read: Meaning of Depreciation
Sales Statement –
The remitter sells goods on behalf of his head or consignor and after a certain period of time, he creates a description of the goods sold and sent to the consignor which is called the sales statement. In this description, the number of goods sold, the value of the goods and the expenditure incurred by the sender on behalf of the sender, the remittance commission, advance amount, and the balance amount are mentioned.
Consignment Expenses –
Any expenses incurred by the consignor and the consignee in relation to the remittance are called remittance expenses. Such as packing expenses, railways, insurance expenses, goods delivery expenses, octroi, warehouse rent, sales expenses, and other shipping-related expenses, etc.
Also Check Out : Basic Accounting Terms – 23 Important terms
Consignment Transactions –
The behavior between a consignor and a consignee in relation to a remittance is called a remittance behavior. Transactions in relation to remittances are accounted for in the books of the consignee and consignee.
Commission of Consignee or Agent –
The award is given to a agent for selling goods on behalf of the consignor is called the commission or remuneration of his services.