Question

Some firms that dispose of only a small part of their total output by consignment shipments fail to make any distinction between consignment shipments and regular sales. Which of the following would suggest that goods have been shipped on consignment?

1) Numerous shipments of small quantities.
2) Numerous shipments of large quantities and few returns.
3) Large debits to accounts receivable followed by small periodic credits.
4) Large debits to accounts receivable followed by large periodic credits.

Answer 1

Consignment shipments can be identified by numerous small shipments, few returns, large debits followed by small periodic credits. Option 3 is correct.

Step-by-step explanation:

The distinction between consignment shipments and regular sales can be determined by considering the following factors:

1. Numerous shipments of small quantities: Consignment shipments often involve sending multiple small quantities of goods instead of large shipments.
2. Numerous shipments of large quantities and few returns: Regular sales typically involve shipping large quantities of goods, whereas consignment shipments are more likely to have numerous small shipments and fewer returns.
3. Large debits to accounts receivable followed by small periodic credits: Consignment shipments may result in large initial debits to accounts receivable, followed by smaller periodic credits as goods are sold.
4. Large debits to accounts receivable followed by large periodic credits: This pattern suggests regular sales rather than consignment shipments.