[Commerce Class Notes] on Meaning of Consignment and Distinction with Sale Pdf for Exam

With the help of new and modern marketing tools, businesses can now expand their sales and move beyond geographical boundaries. Firms use consignment transactions for the delivery of their products and accounting for such transactions is done in a standard manner. Let’s first understand the meaning of consignment.

Consignment Definition

The act of consignment is to hand over goods belonging to one person to another person without transferring the ownership of the goods. Consignment sale meaning in the context of goods relates to sending of goods for sale. This term is used in the shipping or transport of goods.

In the act of consignment, a person/firm sends goods to another person/firm for selling them on behalf of the former. The owner of the goods transfers only the possession of the goods in a consignment and retains the ownership over them.

The purpose of a consignment is to facilitate the delivery or transport of goods. The person who is responsible for keeping and transporting the goods of a party receives a commission for his services. He assumes the responsibilities and risks associated with the control and possession of goods.

Parties to a Consignment

There are two parties to a consignment transaction:

• Consignor or Principal

• Consignee or Agent 

Let’s understand the consignor and consignee meaning in detail. 

• Meaning of Consignor or Principal- As per the consignor definition, the consignor is a party that sends the goods. He holds the ownership of the goods.

• Meaning of Consignee or Agent: Consignee is the party that receives the goods. He does not have the ownership of the goods but has control and possession of goods. 

The relationship between the consignor and consignee is that of a principal and agent. The consignor acts as the principal for the consignee, who becomes his agent.

Consignment Process

Let’s understand the step by step procedure of consignment:

• The first step in a consignment involves the consignor and consignee entering into an agreement of consignment. 

• The consignee agrees to accept the possession of goods from the consignor

• Both consignor and consignee agree upon the terms of their agreement and the commission payable to the consignee.

• The consignor hands over the possession of goods to the consignee along with a proforma invoice. 

• The proforma invoice is a document that contains details about the goods transferred. 

• In the process of consignment, the consignor transfers only the possession of goods and not the ownership over them.

• The consignee undertakes the transport and sale of these goods under his possession

• The consignor pays the commission at agreed rates to the consignee for his services

The consignee sends a statement called Account Sales to the consignor. It contains:

• Details of the sales made by the consignee

• Details of the expenses incurred by him 

• Commission payable to him

Important Terms Related to Consignment:

The consignee bears all the sales expenses and later recovers them from the consignor. The terms of agreement regarding the expenses can be changed by the parties if they want.

• Consignment Number Meaning

Every consignment is allotted a unique consignment number that helps to track the consignment and to keep a record of all the consignment transactions.

• Consignment Account Meaning

A consignment account is an account for goods that are sent to a person or company. This person or company are not the owners of the goods consigned to them but are responsible for selling them or returning the unsold goods to the owner. The value of the goods that are sent on consignment is charged to the consignment account. This account is prepared to ascertain the profit or loss of the consignor on a specific consignment.

• Consignment Store Meaning

A consignment store definition states that it is a shop selling second-hand items on behalf of the original owner, who receives a percentage of the selling price.