17. Freight and storage; consignments occasional and frequent.--If freight has been paid on the con signed merchandise, or storage charges have accrued, the question will always arise, whether or not pre payments of this character, with respect to goods as yet unsold, should be treated, at the close of a period, as deferred charges to future operations, or written away directly to profit-and-loss. While the amounts of these items are usually not large, and while it may not make much difference whether or not they are in cluded in the balance sheet, it is necessary, neverthe less, to dispose of items of this character. It would seem that the final disposition of the items would de pend upon whether or not there were any reasonable prospect of the consignee's disposing of the goods at a price that would enable the consignor to realize the amount of their cost and the accrued charges.
The accounting procedure will depend also upon whether or not consignments are occasional or fre quent; it is clear that the records of a business in which only occasional shipments are made, will differ greatly from those of a business that disposes of most of its products thru the agency of factors. Another question that will have to be considered is, whether consignments should be entered in the financial records at the time they are received, or not until the goods are sold; that is, whether or not memorandum entries should be made in the general books of either party to record the values of goods shipped or received.
It is the opinion of the author that, except in the case of occasional consignments, no entries should be made in the general financial records of the value of consignments shipped or received, because when this practice is followed the sale of the goods at a later date will necessitate making numerous adjustment entries—a rather crude and time-consuming pro cedure.
18. Minimum prices on goods shipped.—The fact that goods are shipped on consignment does not al ways mean that a commission is to be paid. Oc casionally a business house will consign to one of its customers goods that are billed out at a fixed minimum selling price. The consignee, under these circum stances, has the privilege of selling the goods at any price that he can obtain. If the price that he secures is higher than that which the consignor set, the con signee may keep the difference. This differs from an ordinary sale only in that the consignee does not have title to the goods and that he does not have to pay for until he has sold them. The more usual case,
however, is that in which the goods are consigned, either at a fixed price or at an open price, and the factor who sells the goods receives a commission at an agreed percentage on the amount realized. It is evi dent that in these cases the factor is doing a strictly commission business, and consequently his profit is derived from commission and not from trading.
19. Accounts to be kept on the books of the con signee.—As soon as the factor receives a lot of goods on consignment, he will make an entry in an appro priate memorandum book, fully describing the lot, and he will enter the numbers, or marks, by which it is customary to identify consignment shipments. Any expenses which the consignee has incurred in handling goods—such as freight, cartage, insurance and duties—is chargeable to the consignor, and when the consignee pays these charges he will open an account with the consignor charging these items to his account. If the consignments are at all numerous, the factor will probably provide for a con signment ledger to be controlled by a controlling ac count, "consignments," in the general ledger.
If he has made any advances to his shippers, the factor will, of course, charge the account of the shipper with the amounts and credit his cash account, making a notation also on the memorandum record, so as to offset these amounts against the amount of the sales at the time be renders his account sales to the shipper.
20. Del credere agency and its effect upon the bal ance sheets of both parties.—It is evident that when the factor is operating under a del credere agency he may regard the charges made to his customers at the time of sale as valid assets. If so, he should treat the balance in the consignment sales account as a liability, because he has guaranteed to his shipper that the amount will be paid at the due date, and has received an additional compensation because of that guaran tee. The charge for guaranteeing the account, will be made against the account of the shipper, and will be credited to a guaranty account on the books of the factor. 'When the proceeds of the sales are guaran teed, the shipper will credit the account of the factor with the amount due to him for guaranty, charging an appropriate expense account therefor.