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Difficulty: HardNature, Features, and Terminology of Consignment Transactions

In consignment accounting, when a consignee sells goods on credit without receiving a del credere commission, any resulting bad debt is treated as a financial loss of the consignor and is debited to the Consignment Account in the consignor's ledger.

Answer: Answer

Answer

True
The statement is true because without a del credere commission, the consignor remains the principal who carries all ownership and credit risks. Any bad debt arising from credit sales reduces the overall profit of the consignment and is debited to the Consignment Account in the consignor's books.

Step-by-Step Solution

1
Analyze the relationship between del credere commission and risk allocation in consignment transactions.
Del credere commission is an extra commission paid to the consignee specifically to guarantee performance of credit buyers and assume the risk of bad debts.
Financial risk allocation for credit sales depends directly on whether del credere commission is paid to the consignee.
2
Determine who bears bad debt loss in the absence of del credere commission.
Because no del credere commission is paid, the consignor retains full risk for uncollectible debts incurred by credit customers.
The consignee acts strictly as an agent and cannot be charged for customer defaults unless compensated for taking on that specific credit risk.
3
Determine the proper bookkeeping entry in the consignor's ledger.
The bad debt loss is debited to the Consignment Account to record the expense and reduce consignment profit.
Debiting the Consignment Account correctly reflects all operational losses and expenses of the consignment venture.

Key Concept

Risk allocation and accounting treatment of bad debts under ordinary vs del credere commission in consignment accounts.
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Topics

Nature, Features, and Terminology of Consignment Transactions

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