Consignment Account and Consignee's Account in the Books of the Consignor

A consignor records every consignment through two accounts working together. The Consignment Account is a NOMINAL account opened separately for each consignment (or each consignee), through which every cost, expense and revenue relating to that particular consignment is passed, so that the profit or loss earned on THAT consignment can be worked out on its own, distinct from the consignor's other, ordinary trading operations. The Consignee's Account (a real/personal account, e.g. "B's Account") tracks the running amount the consignee owes the consignor, in much the same way an ordinary Debtor's Account would, and is debited with the sales the consignee must account for and credited with the expenses the consignee has paid, the commission earned, and any amount actually remitted.

The Consignment Account is debited with: the cost of goods sent on consignment (transferred from a separate Goods Sent on Consignment Account, kept apart from the ordinary Purchases Account); the consignor's own expenses (freight, insurance, forwarding charges); the expenses the consignee has paid, as reported in the Account Sales; and the consignee's commission (of whichever kinds have been agreed). It is credited with: the sale proceeds, as reported in the Account Sales; the value of any abnormal loss (removed at cost, so it does not distort the ordinary result); and the value of the closing (unsold) stock. The account's balancing figure is the PROFIT or LOSS on that consignment, which is transferred to the consignor's own Profit and Loss Account, exactly like the result of any other line of business.

The Goods Sent on Consignment Account exists so that goods despatched on consignment are never mixed up with the consignor's ordinary Purchases and Sales — it is credited when goods are sent out (removing them, at cost, from what would otherwise look like unsold trading stock) and is finally closed by transfer to the Trading Account at the year-end, so that the consignor's OWN overall gross profit is correctly measured alongside the separately-computed consignment result. …