What does means of goods sent on consignment?
Consignment means delivery of goods to another for sale or purchase. The person who consigns the goods is called the consignor and the one to whom the goods are consigned is the Consignee. The consignor generally uses a Consignment Book to show profit and loss of each consignment separately. There is a consignment account which is debited with the cost of goods sent on consignment, as also all incidental expenses such as freight, taxes etc.
The account is credited with the amount of sales reported by the consignee as also the value of the unsold stock. The credit balance of the account represents a Profit and the debit balance as Loss.
The auditor should ascertain that the goods are debited to the consignment account at cost and check the safes and consignment stock credited to the account with the Account Sales submitted by the consignee.
As a consignment transaction only represents transfer of goods from one place to another, the sale being concluded only after the goods are disposed off by the consignee, it should be ensured that all unsold stock with the consignee is included in the closing stock and excluded from sales.
If the goods on consignment are invoiced at the selling price, and not at cost, the auditor must ensure that appropriate adjustment entries in respect of the difference between the selling price and. the cost are made in the Consignment Account.