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Home Accounting For Consignment/Consignment Accounts Definition and Explanation of Consignment

Definition and Explanation of Consignment:

Learning Objectives:

  1. Define and explain the terms consignment, consignor and consignee.

The word consignment can be generally defined as the act of sending a quantity of goods by the manufacturers and producers of one country or place to their agents in another at the risk of the principals for the purpose of sale.

Goods so sent are known as "consignment". The sender of the goods is called the consignor. Generally the manufacturers or producers are consignors. The person to whom goods are forwarded for the purpose of sale is known as the consignee. The consignment can be classified as:

  1. Outward consignment.

  2. Inward consignment.

It is called "outward" when the dispatch  of a quantity of goods from one country to another is made for the purpose of sale and is called "inward" when the receipt of the quantity of goods is made for the purpose of sale.

Goods sent on consignment do not become the property of the consignee. He has not bought them. The ownership remains with the sender or the consigner. If the goods are destroyed, the receiver (consignee) is not responsible. The loss will fall on the consignor. The consignee tries to sell the goods according to the instructions of the consignor. When the goods have been sold, he will deduct his expenses, commission, etc., from the sale proceeds and the balance is remitted to the consignor. The relationship between the consignor and the consignee is that of principle and agent. The consignee is the agent. The consignee acts entirely on behalf of the consignor. The consignee is entitled to his remuneration which is generally fixed on the basis of a commission of sales. The expenses incurred by the consignee must also be reimbursed by the principal. It is important to remember that the consignee does not buy the goods; he merely receives the possession of the goods.

You may also be interested in other articles from "accounting for consignment" chapter:

  1. Definition and Explanation of Consignment
  2. Distinction/Difference Between Consignment and Sale
  3. Definitions of Important Terms Used in Consignment Accounting
  4. Consignment Accounting Journal Entries
  5. Valuation of Unsold Stock Or Closing Stock in Consignment Accounting
  6. Valuation and Treatment of Normal and Abnormal Loss in Consignment Accounting
  7. Invoicing Goods Higher Than Cost in Consignment
  8. Consignment Accounting Problems, Exercises and Questions
  9. Consignment Accounting Questions and Answers


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