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Difficulty: MediumNature, Features, and Terminology of Consignment Transactions

Kolawole dispatched 100 cartons of footwear to Danladi to be sold on a commission basis. Accompanying the shipment was a document detailing the description, quantity, and estimated selling price of the merchandise to serve as a guide for the consignee. Which document was sent by the consignor along with the goods?

  1. Proforma invoiceAnswer
  2. B
    Account sales
  3. C
    Sales invoice
  4. D
    Credit note

Answer

Proforma invoice
In consignment accounting, a proforma invoice is prepared by the consignor and forwarded to the consignee along with the goods. It serves as a statement of information detailing the description, weight, quantity, and estimated selling price of the merchandise. Because ownership of the goods remains with the consignor, the proforma invoice does not create a debtor-creditor relationship.

Step-by-Step Solution

1
Identify the nature of the transaction and roles of the parties.
The transaction is a consignment arrangement where Kolawole acts as the principal (consignor) and Danladi acts as the agent (consignee).
Goods sent on consignment remain the legal property of the consignor until sold by the consignee.
2
Determine the appropriate document accompanying goods sent on consignment.
The document containing description, quantity, and estimated selling price used to inform the agent without demanding payment is a proforma invoice.
Since legal title is retained by the consignor, a regular sales invoice cannot be issued.

Key Concept

Proforma Invoice in Consignment Transactions
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Topics

Nature, Features, and Terminology of Consignment Transactions

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