The Consignee’s Entries—Second Method.—Under the second method, instead of an entry on the general books, the receipt of the goods is recorded in a blotter or memorandum book of consignments received, in which are entered all essential data, covering the name of consignor, quantity, price, legend or distinguishing marks, etc. Expenses incurred are charged to John Doe, Consignment account on the general books, and sales are credited to the same account. Settlement is made as with John Doe, Principal, as explained above, except that when the balance is not paid it frequently is transferred to a simple John Doe personal account, where so far as account title is concerned it loses its character as a trust account and is merged with all other creditors.
Consignments Must Have Distinguishing Marks.—In making his sales from the various consignments, the factor must be careful to record them in a way to distinguish the goods taken from different consignments. This is particularly true of sales on account, for if the accounts prove uncollectible it is important to know to which lot the loss must be charged. This is accomplished by recording the consignment legend or mark with the sale.
Factor’s Books at Close of Fiscal Period.—When the factor’s books are closed, the commissions earned to date on consignment sales, whether the entire consignment transaction is fully or only partially completed, should be taken into account. Commissions earned on completed consignments should already be on the books as debits to the various principals’ accounts and credits to “Commissions Earned.” The commissions on incomplete consignments are brought on the books by entry of the accrued income in the Commissions Earned account, the amount being based on the sales made from the incompleted consignments during the period. The accounts with these incomplete consignments may show either debit or credit balances. If a debit balance is shown, the account is an asset representing the consignee’s claim against his principal for expenses incurred in excess of sales made. If a credit balance is shown, the account represents a trust liability as above. At a closing time the memorandum accounts of incomplete transactions should be adjusted to their present inventory values.
Consignee’s Inventory.—Just as the consignor must be careful to include in his inventory all goods out on consignment, so the consignee must be equally careful to exclude from his inventory all goods of his principal’s still unsold and in his possession.
Illustrative Entries on Consignor’s and Consignee’s Books.—An illustration of a simple consignment transaction from the viewpoint of both consignor and consignee is given below. It is assumed that a consignment transaction takes place between J. J. Querles and I. M. Factor as follows:
Problem. Querles sends to Factor to be sold on his account goods amounting at cost to $1,250. He pays cartage $15, and insurance $25; while Factor pays freight, duty, and cartage amounting to $52.50. Factor makes sales of $1,600 and renders an account sales showing also allowances to customers of $27.30, a 5% commission charge and 1% for guaranteeing collection of all accounts, and the net proceeds credited.
1. Querles’ books at the time of sending the goods to Factor:
| Consignment, I. M. Factor, No. 1 | 1,250.00 | ||
| Purchases | 1,250.00 | ||
| Consignment, I. M. Factor, No. 1 | 40.00 | ||
| Cash | 40.00 | ||
| Cartage $15, insurance $25. | |||
2. Factor’s books at the time of receipt of Querles’ goods:
| Consignment | 1,250.00 | ||
| Consignments-In | 1,250.00 | ||
| To set up memo accounts of the receipt of Querles’ goods. | |||
| J. J. Querles, Principal | 52.50 | ||
| Cash | 52.50 | ||
| Freight, duty, and cartage on Querles’ goods. | |||