Consignment is one of the important transactions in relation to the accounting of the goods being dispatched to the other parties. So we can say that the consignment accounting is accounting where we need to do transactions of goods which have been transferred from one person to another.
It has been defined as “Dispatch of goods from one person to another for the purpose of warehousing and ultimately leading to sales.” So that amounts to consignment.
The meaning of this definition is that if a person Mr. A residing in Bombay and has transferred his goods to another person living in Kolkata so what happens that the transfer of goods has taken place but only possession has been transferred and not the ownership.
It is the A who is the owner and he has transferred his goods to B for the purpose of selling or for warehousing. Such transfer between the sender and the receiver is called consignment transaction.
Important features of consignment accounting are
1. It is not sales as only possession of goods is changed. (And not ownership)- The meaning of this phrase “possession and not ownership is transferred” all the risk and rewards associated with the goods shall be borne by the consignor himself.
2. The relationship of consignor (sender) and consignee (recipient) is that of Principal and agent. Where the relationship is not of buyer and seller but of principal and agent but of principal and agent so what happens that consignee is not going to get the amount of goods so sold but he will be given remuneration for his services being given to consignor . What shall comprise of this remuneration? It shall be the percent % which he is going to receive.
3. The consignee gets commission as his remuneration. What if he has incurred some expenses for disposing off the goods of the consignor?
4. Expenses so incurred by consignee shall be reimbursed by consignor.
5. Certain amount of money on account of credit sales become irrecoverable in that case if the consignee has not borne bad debt amount onto him, he is going to transfer the same to the consignor, then the consignor is going to bear such risk of bad debt. But if certain agreement is made between the consignor and consignee and that consignee is getting del -credere commission on the total sales and he bears the risk of all such bad debt then he is going to get some extra commission and it is known as Del-credere commission and in that case it is the consignee who is going to bear all such losses.