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Goods Invoiced at Higher Price (Invoice Price Method) 🕵️‍♂️

Why? Sometimes, the Consignor doesn't want the Consignee to know the real profit margin. So, he sends the Proforma Invoice at a higher price (Invoice Price) instead of Cost Price.

Formula: Formula:

Invoice Price (IP) = Cost (CP) + Loading (Profit)

Accounting Problem: If we record everything at IP, the Consignment A/c will show wrong profit. Solution: We must remove the "Loading" (Profit element) by passing reverse entries.

Adjustment Entries (Stock Reserve) 📝

We need to remove loading from 4 items:

  1. Goods Sent on Consignment:
    • Entry: Goods Sent on Consignment A/c Dr. | To Consignment A/c (With Loading amount).
  2. Goods Returned:
    • Entry: Consignment A/c Dr. | To Goods Sent on Consignment A/c (With Loading).
  3. Opening Stock:
    • Entry: Stock Reserve A/c Dr. | To Consignment A/c.
  4. Closing Stock:
    • Entry: Consignment A/c Dr. | To Stock Reserve A/c.
The fraction trick

If Profit is 1/5 of Cost, it is 1/6 of Invoice Price. If Profit is 25% on Cost, it is 20% on Sales (IP). Always convert the % correctly!

Quiz Time! 🎯

Test Your Knowledge

Question 1 of 5

1. The difference between Invoice Price and Cost Price is called:

Margin
Loading
Discount
Loss

💡 Final Wisdom: "It's like wearing makeup. The Invoice Price looks pretty, but we need to wash off the 'Loading' to see the real face (Cost) for calculating true profit." 💄

Next up: Practical Problems - Putting it all together! 🧮

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