Goods In or Out on Consignment. Still another problem in connection with the inventory has to do with goods which do not belong to the business because they have been consigned to it for sale on account of their owner. Inward consigned goods must not be included in the inventory, if taken into stock, it is very important that they be so marked as easily to distinguish them from the regular stock.
Similarly, if goods are out on consignment to another market, they still belong to the business and must not be overlooked at inventory time. If the proper record is made at the time the goods are shipped, as will be explained in [Chapter XLVIII], the memorandum accounts on the ledger will call attention to them. In some concerns all such goods are entered as sales at the time of shipment. If at the end of the period part of these consigned goods are still unsold and in the hands of agents, they should be deducted from the sales for the period and included in the inventory at full cost.
Goods for Future Delivery. Goods sold for future delivery are best handled at inventory time in the manner suggested in [Chapter XLVII], even if they are set aside ready for delivery.
Goods Ready for Current Delivery. Finally, goods sold for current shipment but delayed in delivery on account of congestion in the service or for some other cause are best treated as sales and excluded from the inventory.
CHAPTER XLVII
SALES
Importance of the Sales Department.—Of the major departments into which business activities are commonly classified, the selling department ranks first in point of relative importance. Regardless of the efficiency secured in the other branches, regardless of the economy in buying and the excellence of administration, the life of a business largely depends upon the results obtained by the selling division. Since the sales department plays such an important part in the development of the business, it is evident that the accounting and financial problems connected with sales should be given careful attention and should be handled by the most scientific and up-to-date methods.
As before stated, one of the most important principles of modern accounting is that the system by which the records are to be kept must be planned in advance. The modern accountant must first know the kind of information that is desired and he then can classify the accounts so that the information may be obtained from the ledger or other records at any time, with the least possible effort.
Basis for Sales Classification.—The majority of enterprises at the present time deal in a number of commodities, the kind, quality, and grades of which are of such variety that careful classification is imperative. Formerly all goods sold were classed together under a single title “Merchandise,” with the result that no detailed information concerning the sale of particular goods, qualities, and grades was available and the manager or proprietor was unable to study the movement of specific classes of commodities.
Applying the principle of classification to sales, the basis for classification depends on the character of the business and the nature of the goods sold. Where the commodities dealt in are of such variety that it is impracticable to have a separate account for each kind, a more general grouping by classes may be necessary. Where the concern manufactures some of its commodities and buys the remainder in the open market, an analysis of sales on the basis of “own” product and “other” product may be wanted. Sales may be classified also on the basis of the sales contract, as cash, credit, instalment, sales to branches, consignment sales, approval sales, etc. Accounting problems in connection with these various types of classification will be treated in the present chapter.
Principles Governing Analysis in Books of Original Entry.—It is evident that the kind of classification shown in the ledger determines the journal analysis. That is to say, the analysis in books of original entry, and therefore their columnar ruling, always depends upon the way in which the accounts are classified and grouped in the ledger.