A Consignment Account is a Nominal Account. It is classified as a nominal A/c because it is prepared to ascertain the profit earned or loss incurred on the consignment. The accounting rule applied to consignment A/c: Debit all Expenses & Losses and Credit all Incomes & Gains. As per the modeRead more
A Consignment Account is a Nominal Account. It is classified as a nominal A/c because it is prepared to ascertain the profit earned or loss incurred on the consignment.
The accounting rule applied to consignment A/c: Debit all Expenses & Losses and Credit all Incomes & Gains.
As per the modern rules, there is no clear-cut classification of consignment A/c. It is prepared from the perspective of the consignor, hence it cannot be outrightly classified as an expense/revenue.
In the context of accounting, consignment refers to an arrangement of goods wherein the consignor sends the goods to the consignee so that the consignee can sell/distribute the goods on behalf of the consignor.
The relationship between the consignor and consignee is that of a principal and agent. The consignee gets a commission for his services.
You should keep in mind that the consignee does not get ownership of the goods even though the goods are in his possession. The ownership remains with the consignor till the sale is made. On sale, the buyer will become the owner.
A Consignment A/c is an account prepared to record the transactions happening in a consignment business. This account is maintained by the consignor. It shows the profit earned or loss incurred by the consignor on a specific consignment.
A consignor may send goods to more than one consignee. In such a case, a separate consignment A/c is prepared for each consignment.
The following items appear on the debit side of the consignment A/c:
- Cost of goods sent on consignment.
- Expenses incurred by the consignor (freight, insurance, etc.)
- Expenses paid by the consignee (storage and warehousing, marketing expenses, packaging and selling expenses, etc.)
- Bad debts in consignment.
- Commission paid to consignee.
The entries appearing on the credit side of the consignment A/c are as follows:
- Gross sales.
- Abnormal loss of goods.
- Inventories on consignment (stock in transit).
The balance in the consignment A/c represents the profit or loss made on the consignment. It is transferred to the P&L A/c and the account is closed.
Below is the format for Consignment A/c:
Let us begin with a short explanation of what opening balance is: The opening balance is the amount of funds that are bought forward from the end of one accounting period to the beginning of a new accounting period. In a firm’s account, the first entry done is of the opening balance. It can either hRead more
Let us begin with a short explanation of what opening balance is:
The opening balance is the amount of funds that are bought forward from the end of one accounting period to the beginning of a new accounting period.
In a firm’s account, the first entry done is of the opening balance. It can either have a debit balance or a credit balance depending upon whether the firm has a negative or positive balance.
Opening balance of a ledger
Opening balance is the first entry of the ledger account at the beginning of an accounting period.
In the case of a newly started business, there will be no closing balances and as such there will be no balances to be carried forward. In such a case, the investment and capital of the business will be entered as an opening balance for the current accounting period.
So the first and foremost part is to identify on which side of the ledger i.e. the debit side or the credit side the opening balance is to be entered.
For Example, A trial balance is given which represents the debit and credit balances, accordingly, I will prepare different ledger accounts to make it simpler.
As the Furniture is an Asset account, the opening balance will be on the debit side of the ledger account.
As Sundry creditor is a credit account, we put the opening balance on the credit side.
As the Capital is a credit account, we put the opening balance on the credit side.
As Wages is a debit account, we put the opening balance on the debit side.
As the Discount received is a credit account, we put the opening balance on the credit side.
Exception
Drawing Account.
Drawing account is an exception to this topic. It is considered a contra account to the owner’s capital account because it reduces the value of the owner’s equity. Drawings, therefore, have no opening balance.
Contra Entry.
Contra entry involves transactions of cash and bank. Any entry which involves both the cash and bank is contra entry.
For example, we deposit cash 5000 into the bank.
Accounting entry for this transaction would be
In this case, the ledger entry would be
As the bank account has a debit balance, the opening balance would come on the debit side.
As the cash account has a credit balance, the opening balance would come on the credit side.
Alternatively, If we withdraw cash 5000 from the bank.
Accounting entry would be
In this case, the ledger entry would be
As the Cash account has a debit balance, the opening balance would come on the debit side.
As the Bank account has a credit balance, the opening balance would come on the credit side.
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