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Home Accounting for Consignment Sales Invoicing Goods at a Price Higher than Cost

Invoicing Goods at a Price Higher than Cost:

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Learning objectives of this article:
  1. Why goods are consigned on a price higher than cost?
  2. What is account treatment when goods are sent at a price that is higher than the original cost of the goods?


Goods are normally sent on cost price to the consignee but some time the consignor makes the invoice at the selling price i.e. proforma invoice price. The idea is that consignee should not know the actual cost of the goods. In such cases the entries are made by the consignor in his books at the invoice price. But for ascertaining profit or loss on a consignment the sale proceeds must be compared with the actual cost. Therefore, every item appearing in consignment account at invoice price must be suitably adjusted so as to reduce it to the cost price. This process of adjusting invoice price to the cost price is termed as "unloading". The following additional are made in the books of the consignor to effect unloading:

(i) For unloading the difference between invoice price and cost price on the goods sent on consignment:
  Goods sent on consignment A/C Dr.
            Consignment A/C Cr.
(ii) For unloading the excess value put on the closing stock:
  Consignment A/C Dr.
            Stock reserve A/C Cr.

The effect of the first entry is to reduce the balance on "goods sent on consignment account" to the cost price. As usual it will be transferred to the trading account.

The effect of the second entry is to show "stock on consignment" in the balance sheet as follows:

Balance Sheet (asset side)

Consignment stock xxxxx  
Less stock reserve xxxxx xxxxx

The consignment stock account and the consignment stock reserve account will be taken to the next year's books and then transferred to the consignment account.


On 1st January 2010, Z & Co. of New York consigned 100 cases of dry milk to T & Co. of Chicago. The goods were charged at a Performa invoice value of $10,000 including a profit of 25% on cost. On the same date the consignor paid $600 for freight and insurance. On 1st July, the consignee paid clearing charges $1,000, carriage $200. On 1st August consignee sold 80 cases for $10,500 and sent a remittance for the balance due to the consignor after deducting commission at the rate of 5% on gross sale proceeds.

Required: prepare consignment account and T & Co. account in the books of Z & Co.


Consignment Account



Amount Date


2010     2010    
Jan.1 Goods sent on consignment A/C 10,000 Jan.1 Goods sent on consignment A/C 2,500
  Bank A/C (freight and insurance) 600 Aug.1 T & Co. (sales) 10,500
July.1 T & Co.     Stock on consignment 2,360
    Clearing charges 1000        
    Carriage               200        
    Commission         525     1,725      
  Stock reserve A/C 500      
  Profit trf. to General P&L A/C 2,535      
    15,360     15,360

T & Co. Account



Amount Date


2010     2010    
Aug.1 Consignment to Chicago A/C - sales 10,500 July.1 Consignment to Chicago A/C - exp. & commission 1,725
      Aug.1 Bank A/C - final payment  
    10,500     10,500

Working Notes:

(i) Loading on goods sent on consignment 25% on $10,000. 2,500
(ii) Loading on closing stock 25% on $2,000. 500
(iii) Direct expenses included in valuation of closing stock 1/5 of $1,800 360
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More study material from this 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 price




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