Q.What is Noting of a bill of exchange?

Picture this. You send a parcel of goods to a customer in another city. The goods travel by truck or train, and somewhere along the way the transport company discovers that your packing was weak, or the consignment got damaged, or the weight declared was wrong. To protect the goods and keep them moving, the carrier does whatever is needed — repacks the box, pays a porter, arranges a fresh cart — and then bills you for it. That little bill is a noting charge.

The name comes from the carrier "noting" the defect on the consignment note. In precise terms, noting charges are expenses incurred by a common carrier (railway, transport company, shipping line) to preserve goods in transit when the consignee refuses to pay the freight or the documents are not honoured, and which the carrier recovers from the party responsible. In consignment accounting, they arise when the consignee refuses to take delivery — say because the goods are damaged or the consignor's draft was dishonoured — and the carrier spends money to protect the goods and later recovers it.

Why does this deserve a full treatment rather than a one-line entry? Because noting charges are the classic test of whether you understand who bears the loss and why. The whole point of consignment accounting is that the consignor owns the goods until they are sold; the consignee is only an agent. So any expense that protects the consignor's goods is the consignor's expense, not the consignee's. Noting charges are exactly that kind of expense. They are not a selling expense of the consignee, and they are not a loss of the carrier. They belong to the owner of the goods.

Now the accounting treatment, which is where most students slip.

When the carrier incurs the expense and the consignee pays it on the consignor's behalf, the consignee has effectively lent money to the consignor. So in the consignee's books, the consignee debits the Consignor's Account (the consignor now owes the consignee) and credits Cash/Bank. In the consignor's books, the consignor debits Consignment Account (it is an expense of the consignment) and credits the Consignee's Account (the consignee is now a creditor to that extent).

If instead the consignor pays the carrier directly, the consignor simply debits Consignment Account and credits Cash/Bank, and the consignee's account is untouched.

The key idea to hold on to: noting charges are always debited to the Consignment Account in the consignor's books, because they are incurred to bring the goods to a saleable condition or to preserve them. They are never debited to the consignee's commission account, and they are never treated as the consignee's expense.

Here is the proforma of the Consignment Account, with noting charges sitting among the expenses on the debit side: