Q.What do you mean about consignment ? Explain the difference between consignment and sale.
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Start your 14-day free trial to unlock the full solution →Consignment is the sending of goods by their owner (consignor) to an agent (consignee) for sale on the owner's behalf; ownership does not pass to the consignee. A sale, in contrast, transfers ownership and risk to the buyer at once. The main differences lie in ownership, the relationship, risk, return of goods and the accounting treatment.
Meaning of Consignment
Consignment means the despatch of goods by one person (the consignor, the owner) to another person (the consignee, the agent) located at a different place, so that the consignee may sell those goods on behalf of, and at the risk of, the consignor. The consignee is paid a commission for his services. The relationship between them is that of principal and agent, not buyer and seller. The consignee renders an Account Sales showing sales made, expenses incurred and commission due, and remits the balance to the consignor. Until the goods are actually sold to a third party, ownership and the risk of loss remain with the consignor.
Difference between Consignment and Sale
| Basis | Consignment | Sale |
|---|---|---|
| Ownership | Remains with the consignor until goods are sold to a third party | Passes to the buyer immediately |
| Relationship | Principal and agent | Seller and buyer |
| Risk | Borne by the consignor | Passes to the buyer with ownership |
| Return of goods | Unsold goods can be returned to the consignor | Goods once sold are not normally returnable |
| Expenses | Expenses of the consignee are usually borne by the consignor | Expenses after sale are borne by the buyer |
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