It is a common trade practice for the consignor to demand some advance from the consignee as a security for the goods despatched to him. It may be in the form of cash or bank draft or in the form of a bill of exchange. The consignee will send some amount as an advance before or after he receives the goods from the consignor. The advance received from the consignee should not be credited to consignment account as it is not a part of the sale proceeds.
The advance will be adjusted against the amount due from the consignee when the accounts are finally settled. In some cases, a bill may be drawn on the consignee if he is not in a position to pay advance money. The consignor can discount the bill with his bankers. In such a case, the value of the bill (as advance) so accepted will be deducted from the sale proceeds. The discount paid to the bank can be straight away charged to the Profit &Loss Account as it represent cost of raising finance.
