Sometimes, part of goods being consigned may be lost/destroyed or damaged either in transit or in the consignee’s warehouse. Such loss can be either normal loss or abnormal loss.
This article discuss what are these losses and their respective accounting treatment in Consignment Accounting
Normal Loss In Consignment
What is Normal Loss?
· unavoidable, inherent and to natural causes like evaporation, leakage, drying, etc
Accounting Treatment of Normal Loss In Consignment
Cost of goods consigned X Unsold Quantity
Actual quantity available for sale
Abnormal Loss In Consignment
What is Abnormal Loss?
· Avoidable loss as it does not arise due to the nature of goods
· Caused by theft, accident, fire, pilferage, abnormal breakages, carelessness, etc
Accounting Treatment Of Abnormal Loss In Consignment
The value of loss is treated as follows:
If the stock is insured, the accounting entries of the actual insurance amount claimed is as follows:
Any amount realized on account of damaged goods should also be credited to abnormal loss account.
The balance in abnormal loss account is debited to Income Statement.
Upon receipts from the insurance company, cash account is debited and insurance company being credited.