SHIPMENTS
33. When a principal sends goods to a commission merchant or broker to be sold on commission, it is called a shipment. As soon as the goods are sent, an account is opened with the shipment, and the shipment is designated by the name of the consignee, a number, or the name of the place—as Shipment to Richard Roe. If more than one shipment is made to a commission merchant an account should be opened for each one in order that the gain or loss can be determined for individual shipments. The separate accounts should be designated by number—as Richard Roe, shipment No. 2.
The shipment, when made, is entered in the same way as a sale, and the items are charged at cost price. The account is also charged with any expense incurred on account of the shipment. When the Account Sales is received, the account is credited with the net proceeds. It now shows either a profit or a loss which is transferred by a journal entry to an account called Profit and Loss on Shipments. This account is, in turn, closed into profit and loss when the books are closed.
If at the time of closing the books there are any outstanding shipments on which Account Sales have not been received, the debit balances represent assets the same as inventory of merchandise on hand.
34. Agents' or Factors' Account. If the Account Sales, when received, is accompanied by a remittance to cover net proceeds, cash is debited and the shipment account credited for the amount. When a remittance is not received with the Account Sales, the shipment account is credited with net proceeds and the amount is charged to a new account opened in the name of the consignee as Agent or Bailee or Factor—as Richard Roe, Agent, or Richard Roe, Bailee, which is treated as a personal account. This does not mean that Richard Roe is a debtor in the ordinary sense of the term, but that he holds funds in trust; and in case of his failure, the shipper could recover full value instead of being obliged to accept his pro rata share of the assets.