Category: Commerce Notes PPT

What is Consignment?

Consignment is the arrangement of a system where the goods are left in the possession of an authorized third party to sell those particular goods. Generally, the consignor is the one who receives a percentage of the revenue from the sale, at times a good percentage, this is known as his commission.  

Consignment is done in many cases such as artwork, clothing, accessories, and also to sell books. The retail sales at times can be perceived as a special form of consignment where the producers rely on the retail stores to sell their products to the end consumers, the second-hand stores and the thrift stores are moreover engaged with the practice of consignment.

Understanding the term ‘Consignment’ 

We will understand precisely about the term ‘consignment’ in the following points:

• Consignment is an arrangement where the goods of the producers are left with a third party to sell may be the retailers.

• The party who sells the goods on consignment receives a portion of the sum of profit, either as a flat and fixed rate fee or commission.

• Selling through a consignment arrangement can be of a low-commission, with low-time-investment way of selling items or services.

• Most of the consignment shops and online dealers will offer the terms, while some will negotiate.

• Consignment is advantageous to those who don’t own a physical store or online marketplace in which to sell their goods.

Terms of Consignment

The Manufacturers and the Wholesale dealers come in terms of consignment as they find it very profitable to sell their goods through an agent. An agent who sells such goods on behalf of the consignor and the risk the remains with the consignor or principal. 

The Goods that are sent by the consignor are known as the outward consignment outward, while the goods received by the consignee are known as the inward consignment. The relationship between the consignor and consignee is of a principal and agent only. The terms of consignment must be well known by an accountant. Terms like the following is prevalent while learning commission:

Trade consignor is the person or the producer of goods who sends the goods to the consignee or to other agents like a manufacturer or the wholesale dealer.

Consignee or agent is the person to whom the goods are sent. Goods received by the consignees to resell are known as inward consignment.

The ordinary commission is the normal fees that is payable by the consignor to the consignee for the sale of goods. While, if there is no guarantee for the collection of money from the consumer then the percent of the commission is much lower in such case.

Del Credere Commission is the additional sum of payment which the consignor pays to the consignee to do extra than just selling like for taking the responsibility of collection of debt from the customers.

This is a periodical statement where a consignee prepares and sends the same to the consignor. This statement contains all the details of sales (whether sold by cash or through credit), Expenses incurred, and the amount of commission which is due in particular items, goods destroyed in transit.

‘Proforma invoice’ is sent by the consignor in the form of an invoice to the consignee. The Proforma Invoice contains the details regarding the nature of goods, the quantity of such goods, the weight of the goods, and other measurements related to the particular goods, its price and other details are specified in a proforma etc.

A contract to be performed should be in a definite time and place. This is done to attract the legal objectives of a contract. Parties contracting under this agreement need to perform according to the set time and place to remain valid under the Indian Contract Act.

Further knowledge is needed to be acquired in this subject matter of discussion.

Time and Place of Performance of Contract

As known a promisor and a promisee are the two essentials to a contract, and equally important is the time and place where the contract is to be performed. Given the time and place of the contract to be performed are already agreed upon, then the promisor is liable to perform the promise accordingly. If not, then he should perform the same at a reasonable place and time. The Indian Contract Act, 1872, specifies some rules regarding this time and place for the performance of the contract under the sections between 46 – 50.

When No Application to be made and Also No Time specified 

A contract where the promisor has to perform his promise without any application by the promisee and there is no predetermined time specified for the performance of the same. In such a circumstance, the promisor should perform the contract at a reasonable time. Here the term ‘reasonable’ is interpreted differently. The section specifies that the circumstances of every case will be analysed for the definition of ‘reasonable time’ for the parties involved.

Example: Mona promises to pay Miller Rs 5,000 in cash at his house, within six months, as a repayment of the loan he had taken from Miller. Mona leaves for work at six in the morning which is when Miller returns home from his night shift job. As per the circumstances, the only time when Mona and Miller can meet is at six in the morning. Hence, the time for the performance of the contract is 6 a.m. and the place is at Miller’s house.

Further, if there is a contract where the promisee is not mandated to make an application but the promisor needs to perform the contract only on a Sunday, then the promisor will have to perform such promise during regular business hours, provided the time is specified in the contract too.

Example: Pam promises to deliver certain goods to Jim on payment of an advance of Rs 5,000. Jim makes the payment and asks Pam to deliver the goods on a Sunday. Since the time is not specified, Pam should deliver it between 9 am and 6 pm, the assumption that those are the regular business hours in the place where they reside.

If Pam attempts delivery after the business hours, then Jim has the right to not accept the goods and ask Pam to deliver again during the usual business hours.

Application by the Promisee required 

When there is a contract where the promisee is required to make an application for the performance of a contract, then the promisee needs to ensure that the application is made by him at a proper place and time. In this case, the phrase ‘proper place and time’ will hold wide meanings in different situations.

Like in the example of Pam and Jim, they both enter a contract where Pam promises to fix Jim’s car whenever he asks him to. Pam also takes an advance payment for the same. When Jim asks Pam to fix his car, he needs to ensure that he doesn’t ask Pam to go a lot out of his way. Also, he must preferably ask for repairs during business hours.

When No Application to be made But the Place of Performance is not specified

A contract where the promisee is not necessitated to make an application for the performance of the contract. Also, the place of performance is not specified. In this scenario, the total responsibility of the promisor to apply to the promisee asking him to appoint a reasonable place for the performance of such promise.

Example: Rik promises to deliver 5 audio sets to Mark. On an already fixed day and time. However, the contract does not mention the address for the performance. It is Rik’s responsibility to apply to Mark and ask him to appoint a reasonable place where he can safely accept the delivery of the ordered goods.

Performance as Such prescribed by the Promisee

There is also a chance for a contract to take place, where the promisor agrees to perform the promise in a manner already mentioned and at a place and time prescribed by the promisee.

Solved Example on Performance of Contract

1. Pit owes Rs 5,000 to Jack. According to the agreement between them, Jack doesn’t need to make an application for Pit to repay the loan. Also, there is no mention of either time or place. Further, Pit has agreed to repay the money in a manner and at a place and time prescribed by Jack.

One day Jack visits Pit’s house and takes a liking for a new painting made by Pit. He asks Pit to give him the painting instead of the loan. Pit obliges and does the necessary paperwork. Has Pit repaid his loan?

Ans: According to Section 50 of the Indian Contract Act, 1872, Pit has performed his promise in a manner and at a place and time prescribed by the promisee, Jack.

Jack asked for the painting as a repayment of the loan. Here he exercised his right to devise the manner of the performance of the promise. Since Pit obliged, he had legally fulfilled the contract and was no longer liable to pay any further money to Jack.

Attaching time and place is essential for a valid contract and hence this is to be borne in the mind of the contracting parties.

Sections & Performance of Contract

Section 46

Section 46 there is no period mentioned and also know application Is made by the promisee. And hence in such cases, the promisor must priorly inform the work to be done within a reasonable time

Section 47

In section 47, the time and place of performance of the contract are mentioned. However, there is no application made by the promisee.  ancient and if there is no time mentioned then the promisor is liable to deliver the services promised within usual hours of the business.

Section 48

In section 48, the performance is to be made at a specified time and place, but there must be an application created by the promisee to the promisor. In this contract, the promisor will only fulfil the services, when the promisee makes an application on the specified day. Also, the promisee must request the promisor to complete the services of performance of the contract time and place.

 

Section 49

In section 49, there is no place fixed for the services and no application is to be made to the promisor by the promisee. That means no place is been mentioned for the services to be delivered and there’s not even an application made. And hence in such cases, it is the duty of the promisor to request of promisee of a place to deliver the goods or services accordingly 

Section 50

In section 50, the services mentioned have to be made in time and manner as it is specified by the promisee in the contract. Also, this contract can work in which the promisor agrees to perform the contract at the place and time, promised by the promisee.

A trial balance is an accounting or bookkeeping report that lists balances from a company’s general ledger accounts. The debit balances ‘and the credit balances are listed under their respective fields. The sum of these columns should be the same.

The preparation of trial balance occurs periodically, mostly at the end of every accounting period. The primary purpose of producing this statement is to confirm that there are no unequal journal entries in the books which can hamper the process of preparing any financial report.

Trial balance helps a company to detect if there are any mathematical mistakes in their double-entry accounting system. In a trial balance statement, where the debit and credit side of it is equal, it is considered balanced. Additionally, it ensures that there are no errors in the ledger. However, this does not qualify that it is free of mistakes. For instance, improper entries and missing entries from ledgers are still considered accounting errors that are not detected by a trial balance.

Auditors often ask for the annual trial balance before commencing their audit. It helps them to transfer the account balances to their software. Furthermore, they may even ask for an electronic version to make this copying process easy and time-saving.

A trial balance example is –

How to Prepare a Trial Balance

The preparation of trial balance initially requires closing balances of general ledger accounts. A trial balance is prepared after entering every financial transaction into the journals and then concisely mentioning them on ledger statements. After this follow the below-mentioned steps to make a trial balance –

1. Before commencing, you need to ensure that all ledger accounts are balanced. It requires adding up debit entries and credit entries and finding the difference between them. 

2. Prepare a worksheet with headers like account name, number, debit and credit balances.

3. Fill up this worksheet by transferring the data from ledger accounts. Enter the data in their respective columns accurately.

4. After finishing the entries, add up the amounts of debit and credit columns. In case, the total on both sides are the same; it creates an error-free balance. 

5. In case of a difference in debit and credit balance, you have to find out the mistake and then rectify it.

While preparing a trial balance, you need to ensure that you have all of the material that is required to prepare the same. It is also a must for you to make sure that all the ledgers are balanced out. This enables you to get only the final amount in the Trial Balance and match the credit and debit side.

Various mistakes might be made while preparing a trial balance. Some may even be made before the trial balance preparation. Whatever might be the case, you must ensure that all the errors are rectified in time. This way, all the amounts will be ready to be used further in the various financial statements shortly. 

Convenience of Auditors

Trial balances are prepared not only to check the assets and liabilities. These are also prepared for the auditors to check and copy-paste the content into their system. This helps them analyze the details before they check out and audit the books of a business.

Mistakes to Avoid

Here are some common mistakes that everyone makes while preparing a trial balance –

1. Double entries

2. Omitting entries

3. Entering details in wrong accounts or columns like entering details of the debit account in credit and vice-versa.

4. Making transposition errors

5. Mistakes made while transferring the data from ledger to trial balance statements

6. Making miscalculations while balancing an account

A trial balance format is given below for a better understanding

Rule of Trial Balance

The trial balance rules that you have to follow while preparing one is –

• All assets must be on the debit side

• All expenses and losses must be on the debit side 

• All liabilities must be on the credit side

• All income and gain must be on the credit side

Trial Balance Items List

The list of debit and credit items in the trial balance is as follows –

• The debit side of it will feature entries from accounts like assets, drawings accounts, expense accounts, cash balance, bank balance, losses, purchases, and sundry debtors, among others. 

• The credit side of it will feature entries from liabilities, capital accounts, income accounts, sales, sundry creditors, gains and reserves.

Methods of preparing a Trial Balance

There are two chief methods of preparing trial balance, these are –

1. Total method: Here, entries from each debit and credit side are summed up and then placed at the bottom of each side. The total of each column should be the same.

2. Balance method: Here, the balances of every ledger accounts are presented in the trial balance. 

Advantages of Trial Balance

The benefits of trial balance are –

1. Arithmetical Accuracy: Trial balance indicates the arithmetical accuracy of the accounts of a company. Due to the double-entry system, every transaction has two equal yet opposite entries at every step. Hence, at every point, the debit side must match the credit side. Moreover, the trial balance lists accounts as per date.

2. Comprehensive: Trails balance is technically a summary of all ledgers. Hence, it offers a more holistic view of a company’s accounts and transactions within a specific period.

3. Prerequisite for Preparing Financial Statements: Every company needs to know its financial status at the end of a fiscal year, and trial balance is quintessential in that respect. It streamlines the process of preparing other financial statements. Shareholders of a company often ask for it as it offers a comprehensive study of the accounts of a company.

Preparing trial balance is essential for every company whether it is small or big, and for commerce students, it is a vital chapter. Apart from knowing the preparation of trial balance and other aspects of it, students can visit the official website of to learn more on different subjects of commerce.

The economy is a major part of our life. The economy has been prevalent in our system since time immemorial. Decades long, we have come through many types of economic structures which have their own system of accommodation and planning. It is important for us to know the varied form of economies that plays a fundamental base in our upgrowth.

In this context, we are going to study the basics of the economic system and the types of an economy that prevailed and is prevailing.

Economic System Definition

Economic systems are the means that are adopted by governments of respective countries for the distribution of resources along with services and goods. Such an arrangement is dependent on production factors – capital, labour, physical resources, entrepreneurs, and information resources.

Types of Economy 

There are four types of economic systems –

1. Traditional Economic System 

This economic system retains essential characteristics in which there is a very little specialisation or division of labour.

A traditional economic system is most likely to be found in rural settings, or in such developing nations where farming is predominant. Such settings usually have very few resources to share.

2. Command Economic System 

Command or Socialist economic system has a dominant centralised authority in the form of government. The economy is such a country that is controlled by the government. It is the sole decision-making authority for determining production and allocation.

Ideally, the command system takes into consideration the best interest of its populace.

3. Market Economic System

A market economic system or capitalist economy involves very less government interference and incorporates the principles of the free market. There is a scant exercise of control over resources. Market forces regulate demand and supply.

However, there does exist some degree of government intervention in the form of regulations against monopoly, and in favour of fair trade.

4. Mixed Economic System 

A mixed economic system combines the features of both socialist and free-market economic systems. It is also known as a dual system. Most of the countries today have a mixed economic system with the existence of both public services as well as private industries.

Difference between Types of Economy 

The difference between the types of economies are as follows:

Economic Sectors

These can be categorised into the following –

1. Primary Sector 

The primary sector in an economy has a direct interface with the environment for purposes of production. Instances of the primary sector are agriculture, farming, mining, and fishing, among others.

The importance of the primary sector relates to the harvesting of products or extraction from the environment for procuring basic food and raw material. The end purpose of the primary sector is to utilise natural resources optimally.

2. Secondary Sector 

In the secondary sector of an economy, raw materials are converted into products that are fit for both consumption or sale and help to move away from a primitive economic system. For example, the secondary sector helps a country to move from agriculture or other similar activities towards a developing market.

In India, the secondary sector holds about 20% of the gross domestic product. It helps to provide greater job opportunities to the populace at large.

3. Tertiary Sector 

The Tertiary sector primarily covers the service sector, and therefore, focuses on service exchanges and production. Examples of the tertiary sector are – insurance, banking, communication and transportation, among others.

The tertiary sector’s significance is on the rise due to rapid technological developments in various basic essential services. These basic services include healthcare, police, banking, etc.

The most significant benefit of the tertiary sector is that it has a lower barrier of entry for businesses.

Test Your Yourself:

1. Which economic system takes into account culture and social roles while making economic decisions?

(a) Command economy 

(b) Market economy 

(c) Mixed economy 

(d) Traditional economy

2. Which of the following is the most elementary economic problem?

(a) Capital 

(b) Labour 

(c) Scarcity 

(d) Greed 

3. What is a trade between nations called?

(a) International trade 

(b) Free trade

(c) Trade barrier 

(d) Voluntary trade

Solutions to these questions have been provided at the end of this article

If you are looking to know more about related topics, refer to the online materials available on ‘s platform. 

Solutions

1. (d) Traditional economy 

2. (c) Scarcity 

3. (a) International trade

Do you know?

Economic liberalisation in India was initiated in 1991, and Dr Manmohan Singh was the pioneer of this liberalisation.

In economic liberalisation, government restrictions and regulations are reduced to facilitate the participation of private entities to a much greater extent. It is an inherent principle in Classical Liberalism. “Controls” were removed to drive economic development, which was in a rocky state.

The liberalisation of the Indian economy provided access to foreign investors, which subsequently increased foreign trade. Such changes went on to create higher job opportunities for the people of India.

A company receives applications for more shares than what is offered to the public for subscription. This situation is termed as Over Subscription of shares. However, allotment can be only made to the number of shares that have been issued. The company is not allowed to allot more shares than the issued number even if there is a demand for that particular share. Over Subscription of shares is a situation where the buyers show interest in a new stock for which demand exceeds supply. Before the issue of new shares, the number of potential investors is calculated by the study of the market by underwriters. Based on such calculations of people who may or may not purchase such shares, the company issues a fixed number of shares. 

What is a Subscription of Shares?

Companies or enterprises are the driving force of an economy. They create real value in terms of goods and services for the betterment of the society they serve. Establishing a company or any business requires an initial amount of money as capital. The sheer amount of money required to start any business is often not possible to arrange for an individual or even by a small group of investors for that matter. In such situations, there are some other options available by which they can plan and step ahead in their endeavor. Besides getting a loan from the banking institutions the other suitable option is calling people with money to invest to come together. In this process, the distributed resources are pulled together by the owners for better utilization by establishing a business unit. They are known as the shareholders and are promised a share of profit in proportion to their money invested. 

In a traditional way, this is achieved by offering shares to the interested buyers before the establishment of the company. The individuals with the plan of starting a business estimate the required capital that is needed to be procured from the public. After surveying the expected number of buyers in the market they decide the number of shares to be created. These shares are underwritten with the determined value and are issued in an IPO. Shares can also be created after the establishment of a business also. An expansion of the business or for increasing the capacity also needs more capital so it can also be met either by getting a loan or providing shares.

After the offer of shares 3 things can happen. There can be optimum buyers as per the shares offered which is an idle situation to be expected. Contrarily the buyers can be either more than the shares offered or can be less. When applicants buy more with respect to the shares issued then this condition is known as oversubscription. And if the applicants are less than the total shares issued such a condition is known as under subscription.

In big organizations there are numerous transactions going on, in the midst of these transactions, it is not possible to keep and maintain a record of each and every business affair. While non-recording any minute transaction can be a havoc which the business will never resort to. This is when the subsidiary books come into the action and play as a saviour. 

Subsidiary books are nothing but an order of maintenance of recording similar natured transactions. Subsidiary books are the subdivisions of Journal. In this content, we will know in detail about these books and types of subsidiary books with its function.

Define Subsidiary Books 

Subsidiary Books are the books that record the transactions which are similar in nature in an orderly manner. They are also known as special journals or Daybooks. In big business institutions, it is not easy to record all the transactions in one journal and post them into various accounts. So, for the easy and accurate recording of all the transactions, the journal is subdivided into many subsidiary books. For every type of transaction, there is a separate book.

Types of Subsidiary Books

There are basically 8 types of subsidiary books that are used for recording different types of transactions. So, let us know the types.

The 8 Subsidiary books are as follows:

1. Cash Book

2. Purchase Book

3. Sales Book

4. Purchase Return Book

5. Sales Return Book

6. Bills Receivable Book

7. Bills Payable Books

8. Journal Proper

Set of Subsidiary Books – A Brief Study

1. Cash Book

The first and most important subsidiary book is the cash book. It records all the transactions related to cash and bank receipts and payments. There are 3 types of cash books that are maintained by an organization. They are:

Single Column Cash Book: A single column cash book is like a ledger account. It contains a debit side and a credit side. All Cash receipts are recorded on the debit side, and all the cash payments are recorded on the credit side of the cash book.

Format of Single Column Cash Book:

Double Column Cash Book: Double Column Cash Book is the same as that of Single Column Cash Book; only an extra column of discount is added on both the debit and credit sides of the cash book. It records discounts allowed on the debit side and discounts received on the credit side of the cash book.

The format of the double-column cash book is given below.

Triple Column Cash Book: Triple Column Cash Book contains all the columns of a double column cash book and also has an extra column for the bank. The format of the triple column cash book is given below:

2. Purchase Book

Purchase Book is a subsidiary book that is used to record all the transactions related to credit purchases. The purchases of the asset are never recorded in the purchase book. 

Format of Purchase Book:

3. Sales Book

The Sales Book records all the transactions related to credit sales. The sales book cannot record the sale of assets. The sales book format is given below.

4. Purchase Return Book

The purchase return book, also known as the return outward book, is used to record transactions of all the returns made to the supplier. A debit note is issued against every return and is recorded in the Purchase Return Book.

Format of Purchase Return Book:

5. Sales Return Book

The sales return book records all the transactions related to inward returns. It is also known as a return inward book. When the customer returns goods, a credit note is issued to the customer for every return, and it is recorded in the Sales Return Book.

Sales Return Book Format:

6. Bills Receivable Book

The Bills Receivable Book records all the transactions of bills drawn in favour of the business. The total of the bills receivable book is posted on the debit side of the Bills Receivable account. The Format of Bills Receivable Book is as follows.

7. Bills Payable Book

The Bills Payable Book records all the transactions related to bills that are drawn on the business and are payable by the business. The Bills Payable Books Format is as follows.

8. Journal Proper

There are certain transactions that cannot be recorded in any of the above-mentioned books; these transactions are termed miscellaneous transactions. So, the Journal Proper is used to record all the miscellaneous transactions. It includes transactions such as credit purchase and sale of assets, depreciation, etc.

Solved Examples on Subsidiary Books

In this section, we will be providing a few solved examples to make the content on subsidiary books clearer to our students.

Mentioned below is a five-set of transactions of Moksha Ltd. Company, we will determine the type of subsidiary books that will be used in recording each transaction. 

Transactions:

1. Purchase of goods from MA Ltd.

This is to be recorded in the Purchase Book.

2. Purchase of stationery in cash.

This is recorded in Cash Book.

3. Depreciation on buildings

Journal Proper is the book.

4. Sale of goods in exchange for cash.

Cash Book

5. Bad Debts from Banyan Tree Ltd. transaction

Journal Proper