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Sales Commission to Consignee :: Ordinary/Delcredere/Overriding/Special

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The consignee selling the goods on consignment basis is entitled, as remuneration, to a commission on sales. This commission may take different forms depending on the agreement between the Consginor and the Consignee.

The relationship between the Consignor and the Consignee is that of a principal and agent. The agreement between them is the guide for this relationship. The method of calculating the commissions, is guided by this agreement.

However, there may be instances when we do not know about the agreement between them. In such situations and in all situations where there is nothing to understand things in the contrary, all commissions are calculated as a percentage of the gross sale proceeds made by the consignee.

In general we come across the following types of commissions:

  1. Ordinary Commission

    This is the most common form of commission that we come across in consignment accounting.
    • Calculation

      When given as a %, this commission is calculated as a % of gross sale proceeds.

      Note that if there is a specific method mentioned for calculating commission, we should go by that method to calculate commission even in case of ordinary commission. Where there is no specific method mentioned, we calculate it as a % pf gross sale proceeds. There is no way we can calculate commission without the % of commission or some other method for calculating it being given. We cannot assume the % under any circumstance.

  2. Del Credere Commission

    The ownership of the goods lies with the consignor. The risk in the business is completely borne by the consignor and at the same time the total returns belong to the consignor. The consignee also takes certain risk in terms of putting his efforts for sale, stocking the goods etc. If the goods are not sold, the consignor would be at a greater loss compared to the consignee.

    The consignee may not be willing to sell the goods received on consignment basis on credit for the reason that he may have to be answerable for the collection of the dues relating to credit sales. The consignee would be selling the goods on credit (if so advised by the consignor) only if the risk of collecting the sale proceeds is not with him. If credit sales are made, the consignor cannot assume that the consignee has to give him the sale proceeds unless the consignee receives them from the consignment debtors. This results in the consignor having to take the total risk in the sale and also make the efforts to collect the sale proceeds.

    Since the customers to whom the consignee makes the sales are customers known to the consignee, it would be easier for him to pursue them for collecting the sale proceeds. Therefore to bind the consignee with the responsibility of collecting the sale proceeds relating to credit sales an additional commission known as "Del Credere Commission" is given by the consignor.

    • Del Credere

      (Mercantile Law) An agreement by which an agent, when he sells goods on credit, engages, to insure, warrant, or guarantee to his principal the solvency of the purchaser, in consideration of an additional premium or commission (called a del credere commission). The agreement being, to pay the debt himself if it is not punctually discharged by the buyer when it becomes due.
    • Collection Responsibility

      When the consignee is in receipt of "del credere" commission, he is responsible for the collection of credit sale proceeds. Therefore if there is any bad debt in relation to these Consignment Debtors, the consignee would have to bear the loss. In the absence of any del credere commission being paid, the consignor has to bear this loss.
    • Calculation

      The del credere commission when given as a % is calculated as a % of gross sale proceeds. Even here we should be aware, that the method of calculation is governed by the agreement between them. If there is a specific mention with regard to the method of calculating the commission, it should be followed. If no method is mentioned, then it should be calculated as a % of gross sale proceeds.
  3. Overriding Commission

    A commission paid to general agents or agency managers in addition to the commission paid to the soliciting agent or broker. [This term has its roots in insurance]

    In the process of making extra efforts for pushing through the sale of newly introduced products or slow moving products, the consignor may promise to give additional commission over and above the regular commission being paid. This is termed the "overriding commission".

    • Calculation

      When given as a % and in the absence of any other agreement for the method of calculation this commission is also calculated as a % of gross sale proceeds.
  4. Special Commission

    As the name signifies, this indicates any other type of special commissions that the consignor may agree to pay the consignee.
  5. Calculation

    The calculation of this commission would be based on the method agreed upon between the parties. If this is given as a % and no mention is made regarding the method of calculation this also should be calculated as a % of gross sale proceeds.

Calculating the amount of Commissions

There are a number of different ways we come across in problem solving. If you find them difficult, do not come to a conclusion that consignment accounting is difficult. The difficulty is with interpreting the method of calculating the commission and with the math part.

11. June 26th: For the Commissions payable to the Consignee
      (a) Ordinary Commission Rs. 14,000
      (b) Del Credere Commission Rs. 8,000,
      (c) Overriding Commission Rs. 2,450 and
      (d) Special Commission Rs. 1,200.

Consignor's Books Hide/Show

Accounts Effected by the Transaction » Identification & Analysis:

  • Debit »

    • 11 (a), (b), (c), (d): Vijayawada Consignment a/c

      The commissions payable to the consignee whatever may be the method we use to calculate them and whatever may be the name with which we identify them, would be expenditure for the consignment.

      Since "Consignment a/c" is the only nominal account to record the incomes/gains and expenses/losses in relation to consignment, all commissions are to be debited to the Consignment account.
      ["Consignment a/c" – Nominal a/c – Debit all expenses/losses]

  • Credit »

    • 11 (a), (b), (c), (d): M/s Maruthi Traders a/c

      The commission whatever may be the name we give it and whatever may be the method used to calculate it, is to be paid to the consignee. Since the consignee is to be paid this amount, the consignor would be due to him. Those to whom we owe are our creditors. Therefore to indicate that the consignor owes the consignee, the "Consignee's" is to be credited. The consignee since he did not take receive the amount still, is in the position where he gives the benefit.
      ["Consignee a/c" – Personal a/c – Credit the benefit giver]

 

The effect of the transactions can be summarised as
11(a) :(i) Consignment a/c and (ii) Consignee a/c
11(b) :(i) Consignment a/c and (ii) Consignee a/c
11(c) :(i) Consignment a/c and (ii) Consignee a/c
11(d) :(i) Consignment a/c and (ii) Consignee a/c

 
DrVijayawada Consignment a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

30/06/05
30/06/05
30/06/05
30/06/05
 

To M T a/c (11a)
To M T a/c (11b)
To M T a/c (11c)
To M T a/c (11d)
 





 

14,000
8,000
2,450
1,200
 




DrM/s Maruthi Traders a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)





30/06/05
30/06/05
30/06/05
30/06/05
 

By Vij. Con a/c (11a)
By Vij. Con a/c (11b)
By Vij. Con a/c (11c)
By Vij. Con a/c (11d)
 





 

14,000
8,000
2,450
1,200
 

Journal in the books of M/s __ for the period from ____ to _____
Date V/R
No.
L/F Debit Amount
(in Rs)
Credit Amount
(in Rs)
June 15th Dr
14,000
14,000
June 15th Dr
8,000
8,000
June 15th Dr
2,450
2,450
June 15th Dr
1,200
1,200

Alternative

Instead of repeating the same journal entry a number of times, a single journal entry for the total value of the commission may also be passed. In such a case, there will only be one ledger posting for all the commission together.

Journal in the books of M/s __ for the period from ____ to _____
Date V/R
No.
L/F Debit Amount
(in Rs)
Credit Amount
(in Rs)
June 15th Dr
25,650
25,650

DrVijayawada Consignment a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

30/06/05
 

To M T a/c (11a)
 


 

25,650
 




 
DrM/s Maruthi Traders a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)





30/06/05
 

By Vij. Con a/c (11a)
 


 

25,650
 

Consignees Books Hide/Show

Accounts Effected by the Transaction » Identification & Analysis:

  • Debit »

    • 11 (a), (b), (c), (d): M/s Innova Steels a/c

      In all these transactions the consignor stands in the position of a person who owes the consignee. A person owing us is a debtor. Therefore "Consignor's a/c" is debited. The consignor stands in the position of a benefit receiver since he could manage without paying up the cash for commission immediately.
      [Consignor a/c – Personal a/c – Debit the benefit receiver]
  • Credit »

    • 11 (a): Ordinary Commission a/c

      Since the amount of ordinary commission is income to the consignee it is credited to the "Ordinary Commission a/c"
      [Ordinary Commission a/c – Nominal a/c – Credit all incomes/gains]
    • 11 (b): Del Credere Commission a/c

      Since the amount of del credere commission is income to the consignee it is credited to the "Del Credere Commission a/c"
      [Del Credere Commission a/c – Nominal a/c – Credit all incomes/gains]
    • 11 (c): Overriding Commission a/c

      Since the amount of overriding commission is income to the consignee it is credited to the "Overriding Commission a/c"
      [Overriding Commission a/c – Nominal a/c – Credit all incomes/gains]
    • 11 (d): Special Commission a/c

      Since the amount of special commission is income to the consignee it is credited to the "Special Commission a/c"
      [Special Commission a/c – Nominal a/c – Credit all incomes/gains]

The effect of the transactions can be summarised as
11(a) :(i) Consignor a/c and (ii) Ordinary Commission a/c
11(b) :(i) Consignor a/c and (ii) Del Credere Commission a/c
11(c) :(i) Consignor a/c and (ii) Overriding Commission a/c
11(d) :(i) Consignor a/c and (ii) Special Commission a/c

 
DrM/s Innova Steels a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)

24/06/05
24/06/05
24/06/05
24/06/05
 

To Ord. Comm (11a)
To Del. Comm (11b)
To Ovr. Comm (11c)
To Spl. Comm (11d)
 





 

14,000
8,000
2,450
1,200
 




 
DrOrdinary Commission a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)





24/06/05
 

By M/s I S (11a)
 


 

14,000
 
DrDel Credere Commission a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)





24/06/05
 

By M/s I S (11b)
 


 

8,000
 

 
DrOverriding Commission a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)





24/06/05
 

By M/s I S (11c)
 


 

2,450
 

 
DrSpecial Commission a/cCr
Date Particulars J/F Amount
(in Rs)
Date Particulars J/F Amount
(in Rs)





24/06/05
 

By M/s I S (11d)
 


 

1,200
 

One or more of the commission accounts may be clubbed. All the accounts may be clubbed and in their place only one account, a single "Commission a/c" may be maintained. The more the information they need, the more accounting heads they need to maintain.

Journal in the books of M/s __ for the period from ____ to _____
Date V/R
No.
L/F Debit Amount
(in Rs)
Credit Amount
(in Rs)
June 15th Dr
14,000
14,000
June 15th Dr
8,000
8,000
June 15th Dr
2,450
2,450
June 15th Dr
1,200
1,200

Alternative

Since in all the entries the same account is debited, all the entries can be combined together to form a "Simple Compound/Combined Entry"
  • Simple Compound/Combined Entry

    A simple compound/combined entry is an entry involving three or more elements/account heads and in which there are either multiple debits or multiple credits and not both. Learn more Here

Journal in the books of M/s __ for the period from ____ to _____
Date V/R
No.
L/F Debit Amount
(in Rs)
Credit Amount
(in Rs)
June 15th Dr
25,650
14,000
8,000
2,450
1,200

Note:

Combining the entries in case of the Consignor Books is different from Combining the entries in the Consignee Books. In the Consignor Books, all the entries are the same, therefore all of them are replaced with one entry with the total amount. The individual amounts of commission will not be visible either in the Journal or in the ledger. This entry should not be called a compound entry.

However in case of the Consignee Books, all the entries are replaced by a single compound entry. Here the individual amounts would be visible as in the case of writing "Simple Entries". The ledger postings would also be as they had been in case of writing Simple Entries.

Author Credit : The Edifier ... Continued Page 12

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