Definitions of Consignment
The etymology of consignment refers us to the Latin word consignatio. It is about the act and consequence of consigning. This verb, on the other hand, can refer to establishing an item or an economic outlay for the attention of certain expenses; to determine a place to do something in it; to use certain funds to pay rent or debts; to deposit or assign something; or to establish an opinion, a fact or a vote in a formal or reliable way.
A commissioner, for example, can decide to consign two officers to a park since several crimes have occurred in that public space in recent weeks. This means that the commissioner assigns two of his troops to the custody of the place in question.
In the field of law, a consignment is called a form of payment that consists of the deposit of the required amount or of the thing itself at the disposal of a judge or the creditor himself. This process is carried out when the creditor refuses to receive the corresponding payment or is unable to do so for some reason.
The purpose of the payment on consignment is to interrupt the interest and transfer the maintenance costs and the risk of the property to the creditor. The consignment requires that the debtor, previously, have tried to make the payment to the creditor on different occasions. Said attempts, in addition, must be corroborated by a notary.
A consignment contract, on the other hand, consists of an agreement where the consignee assumes the obligation to market the consignor’s merchandise, previously agreeing on a price to be paid to the consignee. The consignee, within this framework, makes the value of the sales his own and pays the consignee the agreed price. The goods that he could not sell must be returned within the corresponding period.
Precisely, we speak of consignment merchandise to refer to those that a person called consignor, sender or principal sends to another, known as consignee, recipient or commission agent, to sell them on their behalf or on behalf of, following a series of well-defined conditions. previously.
To record the operations that are in this area, it is necessary to carry out certain procedures, many of which are also used within a company, such as the following: inventories (these can be continuous or perpetual); detailed or analytical of the merchandise; general or global merchandise.
It is known by the name of the perpetual inventory accounting record, which is carried out taking into account the operations that involve consignment goods in order to know the amount of the final inventory that is in the hands of the commission agent at all times, as well as the amount of the sales that it has made and the cost of sale of the merchandise. Thanks to this method it is possible to determine profit or loss reliably and accurately.
From the total sales made by the commission agent, it is mandatory to deduct certain expenses necessary for the operation, such as the amount of transport, freight, insurance, commissions and storage, among others that have been originated by the administration, shipping and the sale itself. of the goods on consignment, whether made by the principal or the commission agent. The balance of this amount is debtor and is the cost of sale of the goods; When the fiscal year closes, a payment is made against profit and loss for its balance.
The amount of net sales of goods on consignment is charged from the sale price of those units that are once again in the possession of the commission agent, from discounts on sales and from rebates. Your balance is creditable and is credited against profit and loss at the end of the year.