Consignment Accounting: Understanding Invoice Price and Loading Reversal

The video tutorial explains the concept of invoice pricing, where consigners send goods to consignees at a price higher than the cost to hide profits. It details how to calculate invoice price and loading, and how to record these transactions in consignment accounts. The tutorial also covers handling stock, abnormal losses, and the importance of reversing loading to reflect accurate costs. Finally, it explains the necessary journal entries and the treatment of closing stock in accounting.

Why might a consigner choose to invoice goods at a price higher than the cost?

• To reduce the consignee's competition

• To hide the actual cost and profit from the consignee

• To comply with tax regulations

• To increase the consignee's profit

What is unrealized profit in the context of consignment?

• Profit that is earned when goods are sent to the consignee

• Profit that is taxed immediately

• Profit that is realized when goods are sold to the final customer

• Profit that is shared between consigner and consignee

How is the invoice price calculated if goods are invoiced at 20% above cost?

• Cost minus 20% of the invoice price

• Cost minus 20% of the cost

• Cost plus 20% of the invoice price

• Cost plus 20% of the cost

What is the purpose of reversing the loading in consignment accounts?

• To increase the profit margin

• To simplify accounting entries

• To comply with tax regulations

• To reflect the net purchase cost

Which of the following transactions does NOT require reversing the loading?

• Abnormal loss

• Goods sent on consignment

• Goods returned by the consignee

• Sales made by the consignee

What is the journal entry for recording opening stock in consignment?

• Stock Reserve Account Debit to Consignment Account

• Consignment Account Debit to Stock on Consignment Account

• Stock on Consignment Account Debit to Consignment Account

• Consignment Account Debit to Stock Reserve Account

How is an abnormal loss recorded in the consignment account?

• As a debit to the abnormal loss account

• As a credit to the consignment account

• As a credit to the abnormal loss account

• As a debit to the consignment account

What is the effect of reversing loading on goods returned by the consignee?

• It increases the consignment account balance

• It decreases the consignment account balance

• It has no effect on the consignment account balance

• It transfers the balance to the trading account

Why is a stock reserve account used in consignment accounting?

• To record sales transactions

• To adjust for unrealized profit in stock

• To calculate the invoice price

• To manage abnormal losses

What is the correct entry for closing stock in consignment?

• Stock Reserve Account Credit to Consignment Account

• Consignment Account Debit to Stock Reserve Account

• Stock on Consignment Account Debit to Consignment Account

• Consignment Account Credit to Stock on Consignment Account