Week 10 – SS2 Third Term Financial Accounting Notes

WEEK TEN
TOPIC: CONSIGNMENT ACCOUNT
CONTENT

1. Definition
   
2. Accounting Entries
   
3. Practical illustration
   

Note
Consignment of good means the sending of goods by a supplier to his agent to receive, store and sell them on behalf of the supplier after which the proceeds, having deducted all expenses incurred, will be remitted to supplier. The sender of the goods is called consignor while the agent to whom the goods are sent is called consignee.

 ACCOUNTING ENTRIES
In the Books of the consignor you will open
(a)     Consignment account
i.     Debits all expenses relating to goods consigned
ii.     Credits all revenue relating to goods consigned

 (b) Goods sent on consignment account
i.     Debit trading a/c with the value of goods consigned
ii.     Credit consignment account

 (c)     Bank account (Extracts)
i.     Debit proceed from consignee (agent) after deducting all expenses incurred.
ii.     Credit all expenses incurred by the consignor.

 (d)     Consignee account i. Debit sales account
ii.    Credit all expenses incurred in respect of sales

 EVALUATION QUESTION
1.     Define the term consignment of goods
2.    Explain a. Consignor b. Consignee

 Practical Illustration
On January 1, 1995, Pfizer Product Plc consigned 10 cartons of visine eye drop to Standard Pharmacy at N150 per carton. In the course he paid N400 for freight charges, N140 for insurance, and N850 for advertisement. On receiving the goods on January 5 Standard Pharmacy incurred the following expenses. Storage N100, wages N380, selling expenses N120. By January 24, Standard Pharmacy had sold all the articles and realized a total sum N21,500 in the following analysis is sales by cash N20,000, Credit sales to Kunle N1,500. The agreed commission was 3% and del-credere commission was 2% of the total sales. Required
1.    Prepare the account submitted by consignee on 31/1/95
2.    Prepare all necessary account to record the transaction in the books of the consignor.
Solution
1.    Account sales submitted by Standard Pharmacy
                        N            N
    Sales                                21,500
    Less: Storage            100
        Wages             380
        Selling expenses         120
Commission: General (0.03 x 21,500)    645
    ”    Del-credere (0.02 x 21,500) 430        (1,675)
    Sight draft enclosed                    19,825
2.    In the books of Pfizer Product Plc. (consignor)
Good sent on consignment account
     Trading a/c (N1,500 x 10) 15,000        consignment    15,000
Consignment Account
Goods sent on consignment 15,000    standard pharmacy          21,500
Bank: freight cheque      400
    Advertisement     850
    Insurance          140
Standard Pharmacy
Storage             100
Wages             380
Selling expenses          120
Commission: General      645
Del-credere commission      430
P&L a/c (profit)          3,435
                 21,500                        21,500
Bank account (Extracts)
Standard Pharmacy     19,825        Consignment      N
                            Freight charges    400
                            Advertisement    850
                            Insurance        140

 Standard Pharmacy account (consignee)
Consignment: sales     21,500        Consignment      N
                            Storage          100
                            Wages         380
                            Selling expense     120
                            Comm. General     645
                            Del-credere          430
                            Bank            19,825
                21,500                    21,500

 EVALUATION QUESTION
1.     List the accounts that are opened to record consignment of goods.
2.    Explain the treatment of consignment outwards in the balance sheet.

 Reading Assignment
Simplified Bookkeeping and A/C, Femi Olatunji 260 -265

 Weekend Assignment

1. The person that sends goods to another person for the purpose of selling it is (a) collector (b) consignor (c) consignee (d) none of the above
2. The person who received the goods on behalf of another is (a) consignor (b) collector (c) consignee (d) none of the above
3. Consignment of goods means (a) receiving of goods (b) producing of goods (c) sending of goods (d) all of the above
4. In Goods sent on consignment account, consignment is (a) Debited (b) credited (c) all of the above (d) none of the above
5. In consignment account, advertisement is (a) revenue (b) expenses (c) income (d) none of the above.

 SECTION B
On February 1, 1997 Fadeke Stores consigned 100 cases of electric clippers to her agent Bimbo, at N3,000 per case sundry expenses N420. Bimbo expenses are: warehousing N20 Railways charges N150, selling expenses N50. On April, Bimbo sold the whole consignment for N380,000 and all receipt were taken in cash. Commission Bimbo 3% plus a delcredere commission to of 1% on sales. On 13^th April Bimbo prepared his account sales which, together with bank draft for-remittance, was sent to Fadeke. Required to prepare.
a.    The account sales sent by Bimbo
b.    The necessary ledger accounts in the books of consignor (Fadeke)

 GENERAL EVALUATION/REVISION QUESTIONS

1. What are books of prime entry
2. List any seven books of prime entry
3. Explain the following concepts (a) business entity (b) going – concern
4. What is a ledger
5. List and explain three classification of ledger accounts.