In consignment accounting what is the difference between a consignor and a consignee and how are their roles defined?

Introduction / Context:
Consignment is a special arrangement in trading where the ownership of goods remains with one party while another party sells the goods on commission. This question tests whether you clearly understand the terms consignor and consignee and their respective roles in consignment accounting. These definitions are important in financial accounting because they affect who records inventory who records sales and how commission and expenses are treated in the books.

Given Data / Assumptions:

• There is a consignment arrangement between two parties.
• One party owns the goods and sends them to another party.
• The receiving party sells the goods on behalf of the owner and earns a commission.
• Legal ownership of the goods remains with the owner until sale.

Concept / Approach:
In a consignment relationship the consignor is the principal who owns the goods and sends them to another location for sale. The consignee is the agent who receives these goods and undertakes to sell them in the local market on behalf of the consignor. The consignee does not become the owner but holds the goods in trust. When the goods are sold, the consignee remits the sale proceeds after deducting agreed commission and any authorised expenses. Accounting entries reflect this relationship, with the consignor recording consignments and sales and the consignee recording goods received on consignment and liability towards the consignor.

Step-by-Step Solution:
Step 1: Identify who owns the goods in a consignment arrangement. It is the consignor who sends the goods.Step 2: Identify who acts as agent and sells the goods on behalf of the owner. This is the consignee.Step 3: Recognise that the consignor records consignment stock and ultimately sales and cost of goods sold related to consignment.Step 4: Recognise that the consignee records goods received on consignment usually in memorandum form and a liability to the consignor for net proceeds after commission and expenses.Step 5: Compare these roles with each option and choose the option that correctly defines consignor as owner sender and consignee as agent receiver and seller.

Verification / Alternative check:
A quick verification is to recall the consignment account format in textbooks. The heading usually mentions goods sent on consignment by the consignor. The consignee sends an account sales to the consignor listing units sold sale price expenses and commission. This structure shows that the consignor is the owner and the consignee is the selling agent. None of the other descriptions such as customer manufacturer or transport company match the technical usage of these terms in consignment accounting.

Why Other Options Are Wrong:
Option B treats the consignor as a customer buyer and the consignee as a manufacturer which is the opposite of the actual relationship. Option C describes roles for a transport company and an insurance company which are separate service providers and not the principal and agent in a consignment. Option D calls the consignor a warehouse and the consignee a bank which again has nothing to do with consignment terminology. Only option A correctly reflects that the consignor is the owner sender and the consignee is the agent who receives and sells the goods.

Common Pitfalls:
Students sometimes confuse consignor with consignation buyer or think that the consignee becomes the owner of goods upon receipt. Another common mistake is to treat consignment like a normal sale at the time of dispatch which would incorrectly recognise revenue and transfer ownership. Remember that in consignment ownership remains with the consignor until actual sale and the consignee is only an agent. This clarity helps in correctly recording stock on consignment and calculating profit on consignment transactions.

Final Answer:
In consignment accounting the consignor is the owner who sends the goods on consignment and the consignee is the agent who receives and sells the goods on behalf of the consignor.