FORM FOUR BOOK KEEPING STUDY NOTES TOPIC 1-3.

TOPIC 1: BILLS OF EXCHANGE

Meaning of a Bill of Exchange
Define a bill of exchange
Bill of exchange is written order letter in which there is not any condition. Writer's sign will be in it. In this letter, order to other person is given to pay the certain sum of money to the writer of letter or to pay any other authorized person or who has this bill of exchange.
The Nature of Interest of a Bill of Exchange
Explain the nature of interest of a bill of exchange
Essential of a Bill of Exchange
  1. It should be in written.
  2. Unconditional order to pay.
  3. Signed by writer.
  4. Debtor must be a certain person.
  5. Payment must be a certain amount.
  6. Payment must be done on maturity of bill.
  7. Acceptance must be given by debtor on this bill.
Bills of Exchange and Promissory Notes are treated alike for accounting purposes. That is, both are treated and recorded under the common account “Bills of Exchange”.
We come across four parties to a Bill:
  • (a) Drawer,
  • (b) Drawee (Acceptor),
  • (c) Endorser, and
  • (d) Endorsee.
When a drawer endorses a Bill, which he received from the Acceptor, he becomes Endorser. Endorsee is a person to whom the Bill is transferred. When the endorsee, again, endorses the Bill, he becomes an Endorser and the receiver of the endorsed Bill is an Endorsee.
A bill of exchange or Promissory Note may be treated as Bills Receivable, when payment has to be received against it. Thus, a bill of exchange is Bills Receivable for the drawer as he has to receive the amount. A bill of exchange or Promissory Note may be treated as a Bill Payable, when payment has to be made against it.
Thus, a bill of exchange is a Bill Payable for the drawee (Acceptor). Thus, it is clear that Bills of Exchange or Promissory Notes can be Bills Receivable to one party and Bills Payable to another party.
The Bill in the possession of the Creditor may be dealt with in any one of the following ways:
  1. One can keep the Bill till the date of maturity and realize the payment against it.
  2. One can discount the Bill with a bank before its maturity, if he is in need of money.
  3. One can transfer the Bill, against a debt, to his Creditor by endorsing it.
  4. One can send the Bill to the bank for collection of amount against it.
We shall discuss the accounting treatment of transactions:
Bill Recieved
Account for bill received
Accrued Interest; Default of Bill; Default or Dishonor ; The Discounting of a Bill of Exchange
Account for: Accrued interest; Default of bill; Default or dishonor; The discounting of a bill of exchange
Drawing, Accepting and Discharge of A Bill:
Illustration 1:
On March 10th, A sold goods to B and draws on B a Bill at three months for Rs 800, which B accepts immediately and returns it to A. The Bill is honoured on the due date. Pass entries in the books of both A and B.
Discounting the Bill:
Illustration 2:
A accepted a four months’ draft for Rs 1,000 drawn on him by B on 15th April. The Bill was discounted with the bankers on the next day at 12%. On maturity the Bill was met. Make journal entries in the books of A and B.
Endorsing the Bill:
On 1st June Ram drew a bill upon Krishna for Rs 500 at four months date. This was duly accepted and payable at Canada Bank. After the acceptance, the Bill was endorsed to Gopal. On the due date, the Bill was honoured. Pass the journal entries in the books of all parties.
Dishonouring the Bill:
(a) When Drawer is the Holder of the Bill:
Illustration 4:
Mr. Ravi draws a Bill for Rs 2,000 on Gopal on 15th September for three months. On maturity, Gopal failed to honour the Bill. Pass the necessary journal entries in the books of Ravi and Goipal, if he had retained the Bill with him till maturity. (Calicut)
(b) When Banker is the Holder of the Bill:
On 15th June, Niranjan sold goods to Prema, valued at Rs 2,000. He drew a Bill at 3 months for the amount and discounted the same with his bankers at Rs 1,960. On the due date, the Bill was dishonoured and Niranjan paid the bank the amount due plus the noting charges of Rs 10. Pass the journal entries in the books of the two parties. (B.Com Mysore)
(c) When Endorse is the Holder of the Bill:
On 1st January, A drew a Bill on B for Rs 1,000 payable after three months. B accepted the bill and returned it to A. After 10 days A endorsed the Bill to his Creditor C.
On the due date, the Bill was dishonoured and C paid Rs 5 as noting charges. Record the transactions in the journals of A, B and C.
(d) When the Bill is Sent for Collection:
Illustration 6:
On 1st January, A drew a bill on B for Rs 1,000, payable after three months. Immediately after its acceptance, A sent the Bill to his Bank for collection. On the due date, the Bill was dishonoured.
Record the transactions in the journals of A and B.
Renewal of the Bills:
Illustration 7:
On 1st May, Merchant & Company sold goods to A B & Co. for Rs 500 and drew upon him a Bill at three months for the amount. A B & Co. accepted the draft and returned to Merchant & Co. On the due date A B & Co. expressed their inability to meet the Bill and offered Rs 300 in cash and to accept a new bill for the balance plus interest at 12% p.a. for three months. Merchant & Co. agreed to the proposal. On maturity, the bill was duly met by A B & Co.
Pass entries in the books of the parties to record the above transactions. (B. Com., Karnataka, Madras)
Solution:
Effects of Dishonour of a Bill:
  1. When a bill is dishonoured, it becomes valueless and the original position of debtor and creditor is restored between the drawee and the drawer.
  2. Upon its dishonor, the holder of a bill has a right of action against the drawee or any previous endorser.
  3. When an endorser makes the payment to the endorsee, he can sue any previous endorser or the drawer.
  4. Upon dishonour, to avoid confusion and multiplicity of legal actions, generally the drawer takes up the bill and exercises his rights upon the drawee.
  5. Expenses incurred for establishing the fact of dishonour of a bill (noting charges) are generally paid by the holder, but ultimately these are recoverable from the drawee.
Retiring a Bill under Rebate:
Illustration 8:
On 1st January, A sold goods to B for Rs 1,000 and drew upon him a Bill at three months for the amount. B accepted the Bill and returned it to A. On 4th March, B returned the Bill under rebate of 12% p a.
Record these transactions in the journals of A and B.
Illustration 9:
On 1st February, Ram received from Hari three acceptances for Rs 6,000, Rs 8,000 and Rs 10,000 for two months.The first Bill for Rs 6,000 was endorsed to Mohan; the second Bill for Rs 8,000 was held till due date; and the third Bill for Rs 10,000 was discounted for Rs 50.At maturity all the Bills were dishonored. Give journal entries in the books of Ram and the ledger accounts in the books of Hari, in respect of these transactions. (CA)
Journalise the following transaction in the books of Nilesh.
  • (a) Naresh informs Nilesh that Snajay’s acceptance for `. 8,000 endorsed to Naresh has been dishonoured. Noting charges `. 200.
  • (b) Sujit renews his acceptance to Nilesh for `. 4,800 by paying `.1,600 in cash and accepting a new bill for the balance plus interest for 3 months @12% p.a.
  • (c) Prakash’s acceptance to Nilesh for `.24,000 retired one month before its due date at a discount of 12% p.a.
  • (d) Bank informs Nilesh, the dishonour of Prashant’s acceptance for `. 8,000, discounted with Bank. Noting charges `.160.
Journal of Nilesh
DateParticularsLFDebit (`.)Credit (`.)

Sanjay A/c…………………………..Dr. To Naresh A/c(Being endorsed bill dishonoured and noting charges paid)
8,2008,200

Sujit A/c………………………………Dr. To Bills Receivable A/c(Being Bills cancelled)
4,8004,800

Sujit A/c………………………………Dr. To Interest A/c(Being interest receivable)
9696

Cash A/c……………………………..Dr. To Sujit A/c(Being part payment received)
1,6001,600

Bills Receivable A/c………………..Dr. To Sujit A/c(Being new bill drawn and accepted due after 3 months)
3,2963,296

Cash A/c………………………………Dr.Discount A/c…………………………Dr. To Bills Receivable A/c(Being Bill Retired)
23,76024024,000

Prashant A/c…………………………Dr. To Bank A/c(Being discounted bill dishonorued and noting charges paid)
8,1608,160
A bill of Exchange with Interest Charges included in the Face Amount
Account for a bill of exchange with interest charges included in the face amount
The Concept of Present Value in Accounting of a Log-term Bill of Exchange
 
TOPIC 2: JOINT VENTURES 

The Meaning of Joint Venture
Define a joint venture
An association of two or more individuals or companies engaged in a solitary business enterprise for profit without actual partnership or incorporation; also called a joint adventure.
A joint venture is a contractual business undertaking between two or more parties. It is similar to a business partnership, with one key difference: a partnership generally involves an ongoing, long-term business relationship, whereas a joint venture is based on a single business transaction. Individuals or companies choose to enter joint ventures in order to share strengths, minimize risks, and increase competitive advantages in the marketplace. Joint ventures can be distinct business units (a new business entity may be created for the joint venture) or collaborations between businesses. In collaboration, for example, a high-technology firm may contract with a manufacturer to bring its idea for a product to market; the former provides the know-how, the latter the means.
Joint Venture Accounts in the Books of the Parties
Show the joint venture accounts in the books of the parties
Joint Venture Memorandum Account .
The is another method to record the transactions in the books of the various parties. Under this method the joint venture account is prepared on memorandum basis, just to find out the profit or loss but not as a part of financial books. The name of such account is memorandum joint venture account. I books only one account is opened styled as "joint venture with.....account".
Suppose A and B have entered into a joint venture. The A will open an account named, joint venture with B account. Similarly, B will open, in his books, joint venture with A account. This account is prepared in the following manner:-
  1. Goods sent or expenses incurred on joint venture are debited to the account.
  2. No account is taken of goods supplied or expenses incurred on joint venture by the other party.
  3. If any cash or acceptance is received on account of joint venture or from other party, this account is credited.
  4. The account is debited with own share of profit (ascertained by the memorandum joint venture account) the credit being given to profit and loss account. If there is a loss the profit and loss account is debited and this account is credited. The balance of this account will show either the amount owing to the other party or amount owned by the other party.
Example 1
Example:
Following example will make the concept more clear:
Memorandum Joint Venture Account
Debit SideCredit Side

$
$
To A (Cost of goods & Exp.)5,400,By B - sales12,000
To B (Cost of goods & Exp.)4,300

To B (Commission)600

To Profit:


A 4/51,360


B 1/5 340





1,700






12,000
12,000




In the Books of A
Joint Venture With B Account
Debit SideCredit Side

$
$
To Cash (goods)5,400,By Cash6,760
To Cash (Expenses)4,300

To Profit and loss (4/5 of profit)1,360






6,760
6,760




In the Books of B
Joint Venture With A Account
Debit SideCredit Side

$
$
To Cash (goods)4,000By Cash12,000
To Cash (Expenses)300

To Commission600

To Profit and loss (1/5 of profit)340

To Cash6,760






12,000
12,000




Problem 1 - Journal Entries, Joint Venture Account Co-venture Accounts:
A and B were partners in a joint venture sharing profits and losses in the proportion of four-fifth and one-fifth respectively. A supplies goods to the value of $5,000 and inures expenses amounting to $400. B supplies goods to the value of $4,000 and his expenses amounting to $300. B sells goods on behalf of the joint venture and realizes $12,000. B is entitled to a commission of 5 percent on sales. B settles his accounts by bank draft.
Required: Give journal entries and necessary ledger accounts in the books of both the parties.
Solution:
Books of A
Journal Entries
joint venture account5,000
To Cash account
5,000
(Goods sent to B)



joint venture account400
To Cash account
400
(Expenses incurred on goods sent to B)



joint venture account4,000
To B
4,000
(Goods supplied by B)



Joint venture account300
To To B
300
(Expenses incurred by B on joint venture)



B12,000
To Joint venture account
12,000
(Sales proceeds received by B)



Joint venture account600
To B
600
(Commission due to B on sales at the rate of 5%)



Joint venture account1,700
To B
340
To Profit and loss account
1360
(Profit $1,700 divided as 1/5 to B and 4/5 to self)



Cash account6,760
To B
6,760
(The draft received from B in settlement)



Joint Venture Account
Debit SideCredit Side
To Cash - Goods5,000By B - Sales12,000
To Cash - Expenses400

To B - Goods4,000

To B - Expenses300

To B - Commission600

To B - Share of profit340

To Profit and loss account1,360


12,000
12,000
B Account
Debit SideCredit Side
To Joint venture account12,000By Joint venture - Goods4,000


By Joint venture - Expenses300


By Joint venture - Commission600


By Joint venture - Profit340


By Cash6,760

12,000
12,000
Books of B Journal Entries
joint venture account4,000
To Cash account
4,000
(The value of goods supplied)




joint venture account300
To Cash account
300
(Expenses incurred on joint venture)




joint venture account5,000
To A
5,000
(Goods supplied by A)




Joint venture account400
To A
400
(Expenses incurred by B on joint venture)




Cash account12,000
To Joint venture account
12,000
(Sales proceeds received in cash)




Joint venture account600
To Commission account
600
(Commission due on sales at the rate of 5%)




Joint venture account1,700
To A
340
To Profit and loss account
1360
(Profit $1,700 divided as 1/5 to B and 4/5 to A)




A6,760
To Cash account
6,760
(The draft sent to A in settlement)




Joint Venture Account
Debit SideCredit Side
To Cash - Goods4,000By Cash account - Sales12,000
To Cash - Expenses30000
To A - Goods5,000

To A - Expenses400

To Commission600

To A - Share of profit1,360

To Profit and loss account340


12,000
12,000
A Account
Debit SideCredit Side
To Cash account6,760By Joint venture account5,000


By Joint venture - Expense400


By Joint venture - profit1,360





6,760
6,760




Problem 2 - Joint Venture Account and Co-venturer Accounts:
Salim & Sons bought goods of the value of $7,500 and consigned them to Tahir and Co. to be sold to them on a joint venture, profit being divided in 2/3 : 1/3. They also paid $550 for freight, insurance and cartage and drew on Tahir and Co. for $3,000 on account. The bill was discounted by Salim & Sons for $2,900. Tahir and Co. paid $300 for dock dues, storage, rent etc. The sales realised $12,500 and the sales expenses $250 were defrayed by Tahir and Co. The later forwarded a sight draft for the balance due to Salim & Sons after charging their sales commission at 5 percent on the gross proceeds.
Required: Write up the accounts in the books of both the parties. No interest need to be brought into account.
Solution:
Salim & Sons Books
Joint Venture Account
Debit SideCredit Side

$
$
To cash - cost of goods7,500By Tahir & Co.-sales proceeds12,500
To cash - expenses550

To Discount on bill100

To Tahir and Co.


Dock, dues & storage300


Sales expenses250


Commission625




1,175

To Profit and loss - 2/3 share2,116.67

To Tahir & Co. - share of profit1,058.33


12,500
12,500




Tahir & Co.
Joint Venture Account
Debit SideCredit Side

$
$
To Salim & Co. - cost of goods7,500By Cash - sales proceeds12,500
To Salim & Co. - expenses550

To Salim & Co. - Discount on bill100

To Cash.


Dock, dues & storage300


Sales expenses250



1,175

Commission625

To Profit and loss - 1/3 share1,058.33

To Salim & Co. - share of profit2,116.67


12,500
12,500
Salim & Sons
Debit SideCredit Side

$
$
To Bills payable a/c3,000By Joint venture account7,500
To Cash - sight draft7,266.67By Joint venture account550


By Discount account100


By Joint venture account - 2/32,116.67





10,266.67
10,266.67
The Profit or Otherwise of the Joint Venture
Determine the profit or otherwise of the joint venture
Advantages of Joint Ventures are speed, access, sharing of resources and the leveraging of underutilized resources, high profits, back end income, low or no risk opportunities and massive leverage.
Disadvantages of Joint Ventures are the possibility of being ripped off or disappointed by unscrupulous and unprofessional JV partners, and hurting your reputation and/or customers and associates by associating with the wrong people, even unknowingly.
 
TOPIC 3:  CONSIGNMENT

The Account in the Consignors and Consignee’s Books
Show the account in the consignors and consignee’s books
Consignment Overview
Consignment occurs when goods are sent by their owner (the consignor) to an agent (the consignee), who undertakes to sell the goods. The consignor continues to own the goods until they are sold, so the goods appear asinventoryin the accounting records of the consignor, not the consignee.
Consignment Accounting - Initial Transfer of Goods
When the consignor sends goods to the consignee, there is no need to create an accounting entry related to the physical movement of goods. It is usually sufficient to record the change in location within the inventory record keeping system of the consignor. In addition, the consignor should consider the following maintenance activities:
  • Periodically send a statement to the consignee, stating the inventory that should be on the consignee's premises. The consignee can use this statement to conduct a periodic reconciliation of the actual amount on hand to the consignor's records.
  • Request from the consignee a statement of on-hand inventory at the end of each accounting period when the consignor is conducting a physical inventory count. The consignor incorporates this information into its inventory records to arrive at a fully valued ending inventory balance.
  • It may also be useful to occasionally conduct an audit of the inventory reported by the consignee.
From the consignee's perspective, there is no need to record the consigned inventory, since it is owned by the consignor. It may be useful to keep a separate record of all consigned inventory, for reconciliation and insurance purposes.
Consignment Accounting - Sale of Goods by Consignee
When the consignee eventually sells the consigned goods, it pays the consignor a pre-arranged sale amount. The consignor records this prearranged amount with a debit to cash and a credit to sales. It also purges the related amount of inventory from its records with a debit to cost of goods sold and a credit to inventory. A profit or loss on the sale transaction will arise from these two entries.
Depending upon the arrangement with the consignee, the consignor may pay a commission to the consignee for making the sale. If so, this is a debit to commission expense and a credit to accounts payable.
From the consignee's perspective, a sale transaction triggers a payment to the consignor for the consigned goods that were sold. There will also be a sale transaction to record the sale of goods to the third party, which is a debit to cash or accounts receivable and a credit to sales.
Consignment is a term used to refer to an arrangement whereby goods are sent by their owner (consignor) to an agent (consignee) who holds and sells the goods on behalf of the owner for a commission. It is important to understand that the agent never owns the goods.
Distinction/Difference Between Consignment and Sale:
The following are the main points of the difference between consignment and sale.
Transfer of Legal Ownership of the Goods:
In case of sale, the legal ownership of the goods sold is transferred to the purchaser of goods. Whereas in case of a consignment of goods , the legal ownership of the goods is not transferred to the consignment but the ownership of the goods remains vested in the consignor till the goods consigned are sold by the consignee.
Relationship Between Consignor and Consignee:
In case of a sale of goods, the relationship between the seller and the purchaser of the goods is that of a creditor and a debtor whereas in case of a consignment the relationship between the consignor and the consignee is that of a principal and agent. Because the consignee is to sell goods on behalf of the consignor.
Expenses Incurred:
In consignment, expenses incurred by the consignee in connection with the goods consigned to him are usually borne by the consignor whereas in case of a sale, expenses incurred after sale of goods are born by the purchaser.
Risk Attached to the Goods:
In case of consignment, risk attached to the goods sold lies with the consignor till the goods consigned are sold by the consignee. But in case of a sale, risk attached to the goods sold is transferred to the buyer of goods.
Return of Goods:
In case of consignment, return of goods is possible if the goods are not sold by the consignee. But in case of sale, return of goods is not possible as goods once sold are not returnable.
Requirement of Account Sale:
In case of consignment, account sale is required to be submitted periodically by the consignee to the consignor. But in case of sales no account sale is required to be submitted by the purchaser to the seller.
Problem 1 (Journal Entries and Ledger Accounts):
Riaz Sugar Factory of Multan, consigned to Mr. Shahid of Lahore 400 bags of sugar at $25 per bag. They also paid cartage, freight, etc. $250. The consignor drew on consignee as an advance against the consignment at 3 months for $6,000 which they discounted at their bank at 5 percent. The consignee sold off the goods and rendered an account sales showing that the goods realized $12,000, out of which he deducted his charges amounting to $80 and his commission at 5 percent.
Required: Make journal entries in respect of the above transactions in the books of consignor as well as the consignee
Solution:
Consignor's Books
JOURNAL ENTRIES

Dr.Cr.

$$
Consignment to Lahore account10,000
To Goods sent on consignment account
10,000
Consignment to Lahore account250
To Bank account
250
Bills receivable account6,000
To Shahid Ali
6,000
Bank account5,925
Discount account75
To Bills receivable account
6,000
Shahid Ali12,000
To Consignment to Lahore account
12,000
Consignment to Lahore account680
To Shahid Ali
680
Bank5320
To Shahid Ali
5320
Consignment to Lahore account1,070
To Profit and loss account
1,070
Goods sent on consignment account10,000
To Trading account
10,000
LEDGER ACCOUNTS
Consignment to Lahore Account

$
$
Dr.
Cr.
To Goods sent on consignment10,000By Shahid Ali - Sales Proceeds12,000
To Bank expenses250

To Shahid Ali680

To Profit and loss account1,070


12,000
12,000
Goods Sent on Consignment Account

$
$
Dr.
Cr.
To Trading account10,000By Consignment to Lahore10,000
Bank Account
Dr.
Cr.

$
$
To Bills receivable5,925By Consignment to Lahore250
To Shahid Ali5,320

Shahid Ali (Consignee)
Dr.
Cr.

$
$
To Consignment to Lahore12,000By Bills receivable6,000


By Consignment to Lahore680


By Bank account5,320

12,000
12,000
Bills receivable Account
Dr.
Cr.

$
$
To Shahid Ali6,000By Bank5,925


By Discount75

6,000
6,000
Discount Account
Dr.0Cr.0
0$0$
To Bills receivable75By Profit and loss account75
Profit and Loss Account
Dr.
Cr.

$
$


By Consignment to Lahore1,070
Trading Account
Dr.
Cr.

$
$


By Goods sent on consignment10,000
Consignee's Books
JOURNAL ENTRIES

Dr.Cr.

$$
Riaz sugar factory6,000
To Bills payable account
6,000
Riaz sugar factory80
To Bank account
80
Bank account12,000
To Riaz sugar factory
12,000
Riaz sugar factory600
To Commission account
600
Riaz sugar factory5,320
To Bank account
5,320
Bills payable6,000
To Bank account
6,000
LEDGER ACCOUNTS
Riaz Sugar Factory (Consignor)
Dr.
Cr.

$
$
To Bills payable12,000By Bank account12,000
To Bank - expenses80

To Commission600

To Bank - Balance5,320


12,000
12,000
Bank Account
Dr.
Cr.

$
$
To Riaz sugar factory12,000By Riaz sugar factory80


By Riaz sugar factory5,320


By Bills payable6,000
Commission Account
Dr.
Cr.

$
$
To Profit and loss account600By Riaz sugar factory600
Bills Payable Account
Dr.
Cr.

$
$
To Bank6,000By Riaz sugar factory6,000
Problem 2 - (Abnormal Loss):
1,000 Motors were consigned by A & Co., of Lahore to Bashir of Karachi at an invoice cost of $150 each. A & Co., paid freight $10,000 and insurance $1,500. During transit 100 motors were completely destroyed. Bashir took delivery of the remaining motors and paid $14,400 as duty.
Bashir sent a bank draft to A & Co., for $50,000 as an advance payment and later sent an account sale showing that 800 motors were sold at $220 each. Expenses incurred by Bashir on godown rent and advertisement etc., amounted to $2,000. Bashir is entitled to commission of 5 per cent.
Required: Prepare consignment account and Bashir's account in the books of A & Co., assuming that nothing has been recovered from the insurance company due to defect in the policy.
Solution
Consignment to Karachi Account

$
$
To Goods sent on consignment1,50,000By sales (800 × 220)1,76,000
To Bank - freight and insurance11,500By Profit and loss account - Ab. Loss*16,150
To Bashir - duty14,400By Stock on consignment**17,750
To Bashir - expenses2,000

To Bashir - commission8,800

To Profit and loss account23,200


2,09,900
2,09,900
Bashir

$
$
To Consignment account1,76,000By Bank50,000


By Consignment account


Duty14,400


Expenses2,000



16,400


By Consignment account-commission8,800


By Balance c/d1,00,800



1,76,000
1,76,000


Working Note:
(1)*Calculation of abnormal loss:

100 motors at $150 each$15,000

Add 100/1000 of freight and insurance (11,500 × 100/1000)1,150

Abnormal loss16,150
(2)**Calculation of Closing Stock:

100 motors at $150 each$15,000

Add 100/1000 of freight and insurance (11,500 × 100/1000)1,150

100/900 of duty1,600

Closing stock or unsold stock17,750
Problem 3 (Invoicing Goods Higher Than Cost):
Rashid of city A sends 100 sewing machines on consignment to Malik of city B. The cost of each machine is $130 but the invoice price is at the rate of $160 each. Rashid spends $400 on packing and despatch. Malik receives the consignment and immediately accepts Rashid's draft for $8000. Subsequently, Malik informs Rashid that 80 machines have been sold at $175 each. Expenses paid by Malik are; freight $600, godown rent $50, and insurance $100. Malik is entitled to a commission of 6 per cent on sales and 1-1/2 percent as del credere commission.
Give journal entries in the books of Rashid . Also prepare necessary ledger accounts:
Solution:
Journal
Consignment to city B16,000
To Goods sent on consignment account
16,000
(100 machines at $160 each sent on consignment)

Consignment to city B400
To Cash account
400
(Expenses incurred on consignment)

Bills receivable account8,000
To Malik
8,000
(Malik's acceptance received)

Malik14,000
To Consignment to city B account
14,000
(80 machine's sold Malik at $175 each)

Consignment to city B account750
To Malik
750
(Expenses incurred)

Consignment to city B account1,050
To Malik
1,050
(Commission at 6% plus 1-1/2 on sales)

Consignment to city B account600
To Stock reserve account
600
(Difference in closing stock adjusted)

Stock on consignment account3,400
To Consignment to city B account
3,400
(Value of 20 machines in the hands of Malik)

Goods sent on consignment account3,000
To Consignment to city B account
3,000
(The difference in the invoice value and cost, $30 per machine adjusted)

Goods sent on consignment account13,000
To Trading account
13,000
(Transfer of goods sent on consignment to trading account)

Consignment to city B account1,600
To Profit and loss account
1,600
(Transfer of profit on consignment)

Consignment to City B Account

$
$
To Goods sent on consignment16,000By Malik - Sales proceed14,000
To Cash - Expenses400By Stock on consignment3,400
To Malik - Expenses:
By Goods sent on consignment3,000
Freight600


Rent50


Insurance100




750
To Malik - Commission1,050

To Consignment stock reserve600

To Profit and loss account1,600


20,400
20,400
Malik

$
$
To Consignment to city B account14,000By Bills receivable account8,000


By Consignment to city B account


Expenses750


Commission1,050


By Balance c/d4,200

14,000
14,000
The Transfer of the Consignee’s and Consignee’s Accounts to the Profit and Loss Account
Show the transfer of the consignee’s and consignee’s accounts to the profit and Loss Account
Profit and Loss Account
Dr.
Cr.

$
$


By Consignment to Lahore1,070
Preparation of the Accounts Sales
Prepare the Accounts sales
Activity 1
Prepare the Accounts sales
The Consignment Inward Account in the Book of the Consignee
Show the consignment Inward Account in the book of the Consignee
Activity 2
Show the consignment Inward Account in the book of the Consignee

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