What Is Consignment Accounting and How Are the Entries Recorded?

Accounting for consignment sales records goods that a consignor sends to an agent (the consignee) to sell on the owner’s behalf. Because ownership stays with the consignor until the goods are actually sold, dispatch is not treated as a sale. Instead, a Consignment Account tracks cost, expenses, commission and profit, all settled from the consignee’s Account Sales.

That one distinction — the goods are entrusted, not sold — is what makes consignment entries trip up so many students and new bookkeepers. If you want this foundation built properly rather than pieced together from scattered videos, a structured ACCA Knowledge Level accounting course walks through special transactions like this one entry by entry.

How does a consignment actually work, step by step?

A consignment is a commercial arrangement, not a single transaction. A manufacturer or wholesaler (the consignor) wants to reach a market it cannot service directly — a different city, a different channel, a dealer who already has shelf space and customers. Rather than sell the stock outright to that dealer and lose control of pricing, the consignor ships the goods to the dealer (the consignee) to sell as an agent, for a commission.

The legal and accounting consequence of that single choice runs through everything else: the consignor still owns the goods until a customer buys them. Unsold stock belongs to the consignor. The consignee never records the goods as a purchase, and the consignor never records the dispatch as a sale.

The four moving parts of every consignment, in order.

Two documents hold the arrangement together. The proforma invoice travels with the goods: it looks like an invoice but it is not one, because no sale has happened. It simply tells the consignee the quantity, the catalogue price and any terms. The Account Sales flows the other way, from consignee to consignor, and it is the single most important document in the whole cycle — we come back to it in a moment.

Who is the consignor and who is the consignee?

The vocabulary is worth nailing down because the entries mirror each other and it is easy to post a transaction in the wrong direction.

The consignor is the principal — the owner of the goods who wants them sold. The consignor bears the cost of the goods, usually pays the big one-off expenses of getting them to the consignee (freight, insurance in transit, loading), and ultimately keeps the profit or absorbs the loss. The consignee is the agent — the party who stores and sells the goods for a commission. The consignee is not buying anything; the money the consignee collects from customers belongs to the consignor, less the commission and any local expenses the consignee is entitled to recover.

Because the relationship is principal-and-agent, the consignee’s own books only ever show two things about the consignment: what the consignee owes the consignor, and what the consignee earns from the consignor as commission. The stock itself is invisible in the consignee’s books. If you have worked through our explainer on which book records what, this is the same discipline applied to a tricky case.

What is an Account Sales, and what does the consignee report?

The Account Sales is the periodic statement the consignee sends the consignor summarising everything that happened to the consignment. It is not optional and it is not the same as an invoice. It is the document the consignor uses to write up the entire Consignment Account.

A typical Account Sales shows, in order: the gross proceeds of the goods sold; the expenses the consignee incurred locally on the consignor’s behalf (unloading, godown rent, local carriage, selling costs); the commission the consignee is charging; any advance the consignee had already remitted; and the net amount now being sent to the consignor. In other words, it is a mini profit statement written from the agent’s side of the table.

Get into the habit of reading it top to bottom: gross sales, minus consignee expenses, minus commission, minus advance already paid, equals the cheque enclosed. Every one of those lines becomes a journal entry in the consignor’s books.

How are the entries recorded in the consignor’s books?

The consignor opens a Consignment Account (one per consignment, often named after the destination, e.g. “Consignment to Delhi A/c”). Think of it as a temporary trading account for that batch of goods. All costs go to its debit; all proceeds go to its credit; the balance is the profit or loss on that consignment.

The consignor’s six core entries, in the order they usually arise.

Notice what the “Goods Sent on Consignment” account does: it keeps the dispatch out of the Sales figure. At the year end it is closed off against Purchases or Trading, so the consignor’s normal trading results are never inflated by goods that were only entrusted, not sold.

How does the consignee record the same transactions?

The consignee’s books are far simpler, because the consignee is only an agent. No stock, no Consignment Account — just a running account with the consignor and a Commission Account for the income earned.

Every entry runs through the Consignor’s personal account — the consignee’s one anchor.

Read the two tables side by side and the symmetry appears: whatever the consignor debits to the Consignment Account as the consignee’s expense or commission, the consignee credits to the Consignor Account (expenses) or records as its own Commission income. The money the consignee owes the consignor at any moment is simply the balance on that Consignor Account. The same principal-agent balancing shows up in trade instruments too, as we covered in bills of exchange entries for the drawer, drawee and payee.

What commission does the consignee earn, and who bears bad debts?

Commission is the consignee’s reward for selling. There are three kinds, and they stack depending on the agreement.

Ordinary commission is the base: a percentage of gross sale proceeds. It pays the consignee for the effort of selling, but it gives the consignor no protection if a credit customer fails to pay — that bad debt still lands on the consignor.

Del credere commission changes exactly that. It is an extra percentage paid to the consignee in return for the consignee guaranteeing collection. Once del credere is agreed, the consignee carries the risk of bad debts on credit sales, so the consignor no longer bears them and passes no bad-debt entry at all. By convention, del credere commission is calculated on total sales, not only on credit sales, unless the agreement says otherwise.

Over-riding commission is a further incentive — usually an extra slice for pushing a new product or opening a new territory, or for selling above a target price.

The practical test in an exam or a real ledger is always the same: has del credere been mentioned? If yes, bad debts are the consignee’s problem and never touch the Consignment Account. If no, a bad debt on a consignment credit sale is an expense of the consignment and reduces the consignor’s profit.

Consignment vs an ordinary sale: which is it?

Because the two can look identical from the outside — goods leave a warehouse, money comes back later — it helps to line them up against each other.

Five questions that settle whether a transaction is a consignment or a sale.

How do you value the unsold stock left with the consignee?

At the period end the consignee almost always holds some goods that have not sold. Those goods are the consignor’s asset and must be carried forward — but at what value? The rule is firm: unsold consignment stock is valued at proportionate cost plus a proportionate share of the non-recurring expenses, never at selling price.

Non-recurring (or direct) expenses are the one-off costs of getting the goods to the consignee’s godown — freight, insurance in transit, loading and unloading. They attach to every unit, sold or not, so a share belongs to the closing stock. Recurring expenses — godown rent, salaries, selling costs incurred after the goods arrived — relate to goods actually sold, so they are excluded from stock valuation.

Here is an illustrative worked example (the figures are made up to show the method, not real market data):

Illustrative figures only — the method, not market data.

The consignee’s local selling expenses of, say, ₹8,000 do not enter this calculation at all, because they were incurred after the goods reached the godown and relate to units already sold.

What are the common mistakes to watch when recording consignment entries?

A handful of errors show up again and again, in exams and in real ledgers:

• Treating dispatch as a sale. Goods sent on consignment must never hit the Sales account. Use the Goods Sent on Consignment account and close it against Purchases or Trading.
• Valuing closing stock at selling price. It is always cost plus a share of non-recurring expenses, not what the goods would fetch.
• Loading recurring expenses into stock. Godown rent and post-arrival selling costs belong to goods sold, not to unsold stock.
• Forgetting the del credere rule. If del credere commission is paid, the consignor passes no bad-debt entry — the consignee absorbs it.
• Mixing up normal and abnormal loss. Normal loss (unavoidable wastage) is spread over the surviving units, raising their per-unit cost; abnormal loss is valued like stock and charged to Profit & Loss, so it never distorts consignment profit.
• Posting the consignee’s entries through a Consignment Account. The consignee has no Consignment Account — everything runs through the Consignor’s personal account.

What should you do next?

Consignment accounting rewards a clear mental model over memorised entries. Hold on to three anchors and the rest follows: the consignor owns the goods until sale; the Consignment Account is a temporary trading account for one batch; and the consignee only ever records what it owes the consignor and what it earns as commission. Once those are second nature, del credere, over-riding commission and stock valuation stop feeling like special cases.

If you are building towards ACCA or a bookkeeping role, consignment sits inside a wider family of special transactions — joint ventures, departmental and branch accounts, and bills of exchange — that reward the same disciplined double-entry thinking. A guided path is the fastest way to make it click.

Frequently Asked Questions

What is the difference between consignment and sale?

In a sale, ownership of the goods transfers to the buyer and the dispatch is recorded as revenue. In a consignment, ownership stays with the consignor; the consignee is only an agent who sells for a commission, and unsold goods remain the consignor’s property and can be returned.

Why is the proforma invoice not treated as a sale?

A proforma invoice merely accompanies the goods and informs the consignee of quantities and prices. No sale has taken place because ownership has not passed, so neither party records revenue or a purchase when the proforma invoice is issued.

How is del credere commission different from ordinary commission?

Ordinary commission is a percentage of sales that pays the consignee for selling. Del credere commission is an extra percentage paid so the consignee guarantees collection; once agreed, the consignee bears bad debts on credit sales and the consignor passes no bad-debt entry.

Which expenses are included when valuing unsold consignment stock?

Only proportionate cost plus a share of non-recurring expenses — the one-off costs of moving the goods to the consignee’s godown, such as freight and insurance in transit. Recurring expenses incurred after arrival, like godown rent and selling costs, are excluded.

Does the consignee record the goods as stock?

No. The consignee never owns the goods, so they do not appear as stock in the consignee’s books. The consignee keeps only a memorandum note of goods held and records transactions through the consignor’s personal account and a commission account.

How is profit on a consignment calculated?

Profit is the balance of the Consignment Account after debiting the cost of goods sent, the consignor’s and consignee’s expenses and commission, and crediting the sale proceeds and the value of unsold stock carried forward. A credit balance is profit; a debit balance is a loss.