Definitions of Important Terms Used in Consignment Accounting
Definitions of Important Terms Used in Consignment Accounting:
Learning Objectives:
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Define the most important terms used in consignment account.
Commission:
The term commission as used in connection with consignment denotes the remuneration of the consignee for selling the goods of the consignor. This commission is generally calculated at a rate percentage on the gross proceeds of the sales.
Del Credere Commission:
The del credere commission is an extra commission allowed to the consignee on his guaranteeing the realization of the debts in full, in connection with the credit sale of goods on consignment. Goods may be sold by the consignee either for cash or on credit. When they are sold on credit, the consignee may guarantee that they will be duly paid for and that he will be liable to indemnify the consignor for all bad debts. In such cases; the consignor pays the consignee an extra commission for this guarantee. The extra commission is called del credere commission.
Advance Against Consignment:
Usually the consignee is asked to accept a bill of exchange to cover part of the value of goods. This is a guarantee by the consignee that when sales are effected, he will make the necessary payment. Of course, instead of a bill of exchange, the agent may remit a sum of money to the principle as an advance. This advance or the amount of the bill of exchange will be adjusted when the goods are sold.
Consignment Account:
The consignment account is one which shows what profit or loss is made out of the dealing of the goods sent on consignment. It is the combination of the trading and profit and loss account of any particular consignment.
Pro forma Invoice:
When the consignor sends the goods to the consignee, he forwards a statement showing the particulars such as quantity, quality, price of goods etc. This statement is called the Pro forma invoice. But in case of regular sale, an invoice is prepared and sent along with the goods. It implies that a sale has taken place.
Account Sale:
An account sale is a statement prepared and sent by the consignee to the consignor at periodical intervals, dealing there in the goods sold, price realized, expenses incurred, commission payable to and the net amount due from the consignee. The following is a specimen form:
[Format/Example of Account Sale]
Account sales of 75 cases of fancy goods received from and sold on account and risk of Messers A & Co.
$ | $ | |
35 case of fancy goods at $150 per case | 5,250 | |
40 cases of fancy goods at $200 per case | 8,000 | |
|
13,250 | |
Less Charges and Expenses: | ||
Freight & Cartage | 50 | |
Brokerage | 10 | |
Insurance | 150 | |
Storage | 200 | |
Commission at 10 percent of sales | 1,325 | |
|
1,735 | |
|
||
11,515 | ||
Less Amount of our acceptance given in advance | 10,000 | |
|
||
Bank draft now enclosed | 1,515 | |
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||
E. & O. E. |
Signed: |
|
New York, 26 December. 2009 | A & Co. |
You may also be interested in other articles from “accounting for consignment” chapter:
- Definition and Explanation of Consignment
- Distinction/Difference Between Consignment and Sale
- Definitions of Important Terms Used in Consignment Accounting
- Consignment Accounting Journal Entries
- Valuation of Unsold Stock Or Closing Stock in Consignment Accounting
- Valuation and Treatment of Normal and Abnormal Loss in Consignment Accounting
- Invoicing Goods Higher Than Cost in Consignment
- Consignment Accounting Problems, Exercises and Questions
- Consignment Accounting Questions and Answers
Other Related Accounting Articles:
- Distinction/Difference Between Consignment and Sale
- Definition and Explanation of Consignment
- Consignment Accounting Questions and Answers
- Invoicing Goods Higher Than Cost in Consignment
- Consignment Accounting Exercises and Problems
- Valuation and Treatment of Normal and Abnormal Loss in Consignment Accounting
- Valuation of Unsold Stock Or Closing Stock in Consignment Accounting
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