@ahsq on the consignment question (pg 18 of the AUD forum)
I had to remind myself how consigned goods are recorded by the consignee to figure this out.
– the consigned goods will not appear in the Inventory account
– when sold, the consignee will record a debit to cash (AR) and credit Payable to Consignor
– When the consignor is compensated, the Payable will be debited in full; credits will be cash paid to consignor and commission revenue to consignee
With all that in place, looking at the answer choices:
Tracing of shipping documents to the sales journal – Consigned shipments in would not appear in the Sales journal but in the Payables journal (or would show up in sales with a correcting entry moving them to Payables) so the disconnect would help identify the consignment relationship
Test of cash receipts transactions. Cash receipts would show the items sold (if properly recorded) as consignment items, or as sales with correcting entry
Confirmation of accounts receivable. AR, like cash receipts, would show items sold as consignment items, or would have the correcting entry
Observation of physical inventory. Observation of inventory would not, alone, indicate that a consignment relationship exists; a secondary procedure reconciling physical inventory to the inventory account would reveal that they don't match and prompt inquiry into the reasons. While this would eventually work, it is the least effective way to find out.
Is there a faster way to untangle this?
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