Meaning of Consignment, Consignor and Consignee

A business often wants to sell its goods in a distant town, a different state, or even a different country, but does not want to set up its own branch there or find an outright buyer willing to purchase the entire lot in advance. Consignment is the arrangement that solves exactly this problem: the owner of the goods sends them to an agent in that other place, with clear instructions to sell the goods on the owner's behalf, for the owner's risk and reward, in return for a commission on whatever is actually sold. The person who sends the goods is called the Consignor (the owner, the principal), and the person who receives the goods and sells them is called the Consignee (the agent). For the Andhra Pradesh Board of Intermediate Education (BIEAP) second-year Commerce examination, Consignment is one of the more distinctive chapters in AP Intermediate Accountancy questions and answers, precisely because it looks, at first glance, like an ordinary sale, but is built on a genuinely different legal and accounting relationship.

The single most important idea in this chapter is that a consignment is NOT a sale at the point the goods leave the consignor's premises. Ownership (title) of the goods remains with the consignor throughout — the consignee only holds POSSESSION of the goods, as an agent, until a genuine sale is made to a real, independent third-party customer. Because ownership has not passed, goods sent on consignment are never recorded as "sales" in the consignor's books, and never as "purchases" in the consignee's books; the consignee is not a buyer and does not owe the consignor a fixed price merely for having received the goods. If the goods (or part of them) cannot be sold, the consignee is entitled to return them to the consignor — something a genuine buyer, having already taken ownership under an ordinary sale, could never insist upon merely because the goods proved hard to resell.

Because the consignee acts purely as an agent, the profit or loss on eventually selling the goods belongs entirely to the consignor, not to the consignee — the consignee's own reward is limited to the agreed commission, regardless of how profitably or unprofitably the consignor's goods are eventually sold. The consignee also owes the consignor a duty to account faithfully for every unit received: what was sold, at what price, what remains unsold, and what expenses were incurred while carrying out the consignor's instructions.

A student sitting the AP Intermediate Commerce examination should always test a given transaction against these features before deciding whether it is a genuine sale or a consignment dressed up to look like one — the wording "sent goods to an agent for sale" is the standard signal that a consignment, not a sale, is involved.