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Accounting for Consignment Sales:

Learning Objectives:

After studying this topic you should be able to:
  Define and explain consignment.
  Prepare a consignment account, consignee account and account sales.
  Explain advantages and disadvantages of sending goods on consignment.
  Distinguish between goods consigned and goods sold.


In today's world of business, every manufacturer, exporter or wholesaler tries his best to sell his products in his own country and abroad to a larger extent. But it is not an easy task, because a businessman cannot have the exact information about the demand of his product in different parts of the country and abroad. There are two methods by which businessmen can increase the sale of their products. These methods are:
  1. Opening branches in different parts of the country and abroad.
  2. Appointing agents in their own country as well as abroad.

The first method is very extensive because a large sum of money is needed to establish a branch and a number of persons are required as manager, clerks, accountant etc. to carry out different operations of the branch. In spite of spending such a heavy amount, the branch may prove unsuccessful or the profit earned by the branch may be very small as compare to the amount invested in the branch.

So far as the second method is concerned, the manufacturer or wholesaler just appoints an agent who sells goods on behalf and on the risk of the manufacturer or wholesaler. The agent is paid commission which is generally a percentage of sales made by him. The agent tries to sell the goods in the best possible manner and remits the sale proceeds of the goods after deducting expenses and his own commission to the manufacturer or wholesaler. This is comparatively a low cost method of promoting sales in different parts of the country and abroad. This method is generally known as "sending goods on consignment basis".

Read our high quality articles about "Accounting for Consignment Sales" topic:

  Account Sales
  Difference between consignment and sales
  Journal entries in the books of consignor
  Valuation of closing/unsold stock in consignment business
  Invoicing goods at a price higher than cost
  Normal and abnormal loss in consignment




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