Consignment Account Problem 1 – Financial Accounting – By Saheb Academy #Finance

Hi guys in the last CashNews.co we have seen the introduction of consignment accounts okay now in this CashNews.co we are going to solve a problem on consignment okay here it is said that Mahesh of Mumbai consigned goods of the cost of rupees 20,000 to Balaram of Bangalore okay so Mahesh

has sent goods to Balaram of costing rupees 20,000 okay so Mahesh is the consignor and balaram is the consignee okay then it is said the consignor pays freight of Rs.1000 and Insurance of Rs.500 okay so Mahesh has incurred some expenses to send the goods to the consignee okay and

received an advance of Rs.10,000 by cheque from Balaram okay so Balaram has paid an advance to Mahesh of 10,000 okay alright then it is said the consignee paid carriage of Rs.300 and octroi of the Rs.200 okay so Balaram also has incurred some expenses to receive the goods okay then it is said he

sold all the goods for Rs.30,000 Rs.30,000 and sent an account sales okay so he sold the goods he sold all the goods okay and sent an account sales Accounts sales it is a statement containing all the information of what Consignee did how much goods he received okay how much he he sold and how much

commission he charged etc. etc. all right okay then it is said he also sent a cheque to Mahesh for the amount due after deducting his expenses along with the Commission at 10 % on the gross sale proceeds okay so he sent a cheque to Mahesh all the money which he received that is 30,000 he sent a

cheque to Mahesh after deducting his expenses so all the expenses of Consignee is bear by Mahesh okay then along with the Commission 10% that means consignee is getting a commission of 10% on the gross sale proceeds okay ten 10% on 30,000 okay that is the sales okay then it is said prepare the

necessary ledger account in the books of Mahesh the consignor okay so we’ll prepare three accounts first one would be Consignment a/c and the second one would be the Consignee a/c account and the third would be Good sent on consignment a/c okay it is very easy okay I will show you how to

prepare all those three accounts okay okay okay now we’ll prepare all the accounts in the books of Mahesh okay that is the consignor okay all right now consignment account consignment account is similar to Trading & P/L a/c okay in consignment account we record expenses on debit side okay

and Revenues Revenues on Credit side okay so consignment account is prepared to find out Profit or loss made by the consignment okay so in this question first it is said that Ramesh send the goods to Balaram okay so he had to

purchase this goods before sending it on consignment okay so that purchase is an expense for Mahesh okay so expense we record it on the debit side of consignment account okay so here we will write this 20,000 okay 20,000 and we will write here ”To goods "To goods sent on

consignment" okay to good sent on consignment okay next it is given here the Ramesh has incurred some expenses to send the goods okay like freight and Insurance of 1,000 and 500 so this is also an expense for Mahesh okay so these expenses will also come on the debit side okay

but here we will write here "To cash" okay we will NOT write To Freight or To Insurance because in consignment account we need to prepare limited number of accounts okay we need to prepare limited number of accounts so to prepare limited number of accounts we have to take

here to cash okay and here under we will write freight and Insurance okay that is 1,000 and 500 equal to 1500 okay next here it is said that Balaram the Consignee has also incurred some expenses such as carriage of 300 and of Otroi of 200 okay so these expenses will also come on

the the debit side okay "To Balaram" here we will write as "To Balaram" and NOT To Cash okay because Balaram is the person who incurs those expenses okay carriage of 300 and Octroi of 200 okay equal to 500 okay now it is said Balaram sold all the goods for 30,000 30,000 okay so

this is Sales so sales is it an expense or a Revenue of course it is a Revenue okay so all the Revenues will come on the Credit side okay so we will write here 30,000 okay and here we will write "By Balaram" because

Balaram is the person who sold all the goods okay sales okay now next here it is said that commission on sales that means Balaram is entitled to a commission of 10% on sales Commission is an expense for Ramesh okay because Ramesh has to pay the Commission to Balaram so that expense will come on the

debit side okay and it will come as "To Balaram" okay commission it is said Commission of 10 percentage Commission on sale 30,000 okay so 10 percentage on 30,000 is equal to 3000 okay easy right okay now we will balance this account and find out the balancing figures okay so

Credit side is bigger than debit side okay so we will write this 30,000 on both sides 30,000 30,000 okay then we’ll subtract all this with 30,000 okay and it will give us the balancing figure that is 5000 okay "To Profit and Loss" the

Profit will be transferred to Profit and loss account okay easy right oh okay after preparing the consignment account we need to prepare The Consignee A/c okay and this account is prepared to find out the amount due from the consignee okay amount due from the

consignee okay all right so to prepare this account first you need to see the consignment account okay you have to see where the consignee name appears on the consignment account okay if it appears on the debit side then you have to Credit it in the consignee account okay and if it

appears on the Credit side then you have to debit it in the consignee account okay so here Balaram has appeared here on the debit side of consignment account so we will Credit it over here as by By Consignment okay By Consignment equal to 500 similarly it has

appeared here also To Balaram so here it is debited then here it will be here we will Credit it ok By Consignment 3000 rupees okay now Balaram name has also appeared on the Credit side of consignment account okay so we will debit it in the consignee accounts by

consignment as by consignment okay By Consignment 30,000 all right oh then it is said in the question that Balaram has paid an advance to Ramesh of 10,000 okay so that advance we will record it on the Credit side of consignee account as "By Bank" okay "By Bank"

10,000 okay it is given in the question. okay then we will balance this account and find out the amount due from the consignee okay so debit side is bigger than the Credit side okay so we’ll write 30,000 on both the sides okay 30,000 30,000 then we will subtract all these

with up 30,000 and it is equal to 16,500 okay and it will be the balancing figure and we’ll write By Bank okay is a balancing figure okay easy right okay okay after preparing the Consignment A/c and then the Consignee A/c we need to prepare Goods Sent on Consignment A/c okay so to prepare

this account you need to see the Consignment A/c okay and see where the goods sent on consignment appears in the consignment account okay in this problem it appears on the debit side okay so we will Credit it over here okay as "By Consignment" okay By Consignment 20,000

okay and we will balance this directly ok we’ll balance this will balance this account and here we will write "To Trading A/c" okay we will transfer this balance to trading account okay this is the balancing figure easy right okay okay at first we prepared the consignment account in

the books of Mahesh okay and this account is prepared to find out the Profit or loss made by the consignment okay and in this account all the expenses are recorded on the debit side and all the Revenues on the Credit side okay and we debited this

too "Goods Sent on Consignment" because this was a expense for the consignor okay and similarly these expenses we recorded it as "To Cash" because in consignment we always record expenses of Consignor as "To Cash" okay similarly the consignee has also incurred some

expenses so we recorded his expenses by his name as "To Balaram" okay then we recorded his commission the commission of Consignee "To Balaram" as 3,000 okay then Balaram has Sold all the goods so we recorded here on the Credit side because Sales is a

Revenue so we always record Revenue on the Credit side okay so we Credited "By Balaram" 30,000 because balarama was the person who sold all the goods okay okay then the balanced is account and found out the

Profit as 5000 okay easy right okay okay after preparing the Consignment A/c we prepared the Consignee A/c okay and this account is prepared to find out the amount due from the consignment okay so to prepare this account first we saw the consignment a/c okay and whatever was

Credited over here by the name of consignee we debited it over here by the name of consignment okay and whatever was debited over here by the name of consignee we Credited it over here by the name of consignment okay then we Credited the bank

advance the advance that was paid from the consignee to the consignor okay and then as a balance figure we found out then as a balance in figure we found out as amount due as 16,500 okay easy right okay okay after preparing The Consignment A/c and then The Consigning A/c we prepared Goods Sent on

Consignment A/c okay and this To goods sent on consignment we Credited it as By Consignment okay then we balanced this account and found out the balancing figure as 20,000 20,00 okay and we transferred this balance to trading accounts okay easy right Okay.