Journal Entries for Consignment
Rajesh, a retailer, consigns goods to a wholesaler, Kumar, for selling. The consignment agreement states that Rajesh is entitled to a commission of 20% on the selling price of the goods. If Kumar sells 100 items at Rs. 120 each, what journal entry would Rajesh make at the time of consignment, assuming all items are sold immediately?
1 Answer
📌 CONCEPT: When a consignment agreement is made, the consignor (Rajesh) records a journal entry to recognize the commission receivable on the sale of goods by the consignee (Kumar).
📐 RULE / FORMULA: The journal entry for consignment involves debiting 'Sales' or 'Trading Account' and crediting 'Commission Receivable' or 'Accounts Receivable' on the date of consignment.
💡 WORKED EXAMPLE: Rajesh consigned 100 items to Kumar for sale at Rs. 120 each. The commission rate is 20%. Journal entry at the time of consignment: Debit 'Trading Account' or 'Sales Account' with Rs. 12,000 (100 items x Rs. 120 each) and Credit 'Commission Receivable' with Rs. 2,400 (20% of Rs. 12,000).
⚠️ COMMON MISTAKE: Students often forget to debit the trading account or sales account with the selling price of the goods, which is incorrect. They should only debit the amount that represents the goods sold, not the commission receivable.
04 Jul 26
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