Question

Final adjusting entries have not yet been made.

Using the terms and asset accounts, such as "Merchandise inventory" and "Consignment inventory", can anybody help me determine how to interpret the above word problem in order to make a correct adjusting journal entry below in the general journal? What should be the proper explanation to describe what is being highlighted in the word problem below?

1.   At 12/31/17, Peyton has $200 worth of merchandise on consignment at Bruno’s House of Bacon.

Debito Credito General Journala Date Account-Title-&-Explanation Post-Ref. Dec 31, 2017 0 do 8 8 8 8 8 8 $0

**Below is the Unadjusted and Adjusted Trial Balance, where both the accounts called "Merchandise inventory" and "Consignment inventory are found.**

Answer 1

Both "Merchandise inventory" and "Consignment inventory" are goods held by an owner for sale & making profit ,in the normal course of a business.

Merchandise inventory are those

1.Meant for sale , to earn profits

2.Over which the owner of the business has physical as well as economic,ie. ownership control

In contrast,

Consignment inventory, also called goods sent on consignment

1.are also meant for sale, as above , to earn profits

2.Only that ,the owner or consignor does not have physical possession of the goods,but still, only he is the owner of the goods.

3. The goods are entrusted to the consignee, who has agreed to keep possession of the goods , sell them & send the pre-agreed sale proceeds to the consignor, after deducting the agreed-upon consignment commission, for effecting the sale.

4. the consignee, acting as an agent of the consignor, helps the latter who is the owner ,to sell his goods, on a commission basis.

5. So, all the goods , lying unsold with the consignee , as at the financial year -end date , are included in the books of the consignor or the owner , at the appropriate costs , as for the merchandise inventory.

6. Just to differentiate between physically-held & held -at -consignee's- place goods, they are entered under a separate account head called consignment inventory---meaning those that are lying with the consignee.

7. the consignee just keeps a record of goods received on consignment, sales effected & remittances of sales amounts to the consignor, as his commission is dependent on these transcations. He does not take these goods into his books of accounts.

So, that explains the difference between

"Merchandise inventory" and "Consignment inventory",

The adjusting journal entry will be

Debit Consignment Inventory 200

Credit Consignment a/c 200