consignments

Consignments refer to a stock arrangement in which goods are supplied by a consignor to a consignee for sale. The consignor retains ownership of the goods until they are sold, while the consignee stores, displays, and sells the items on behalf of the consignor. The usual arrangement involves the consignee earning a commission or fee on each sale, with the sale proceeds shared according to an agreed split. If items are not sold within a defined period, the contract typically provides for return of the unsold goods or disposal of them under specified terms.

From an accounting perspective, ownership and control determine how the parties record the transaction. The consignor generally keeps the inventory on its balance sheet until sale, recognizing revenue only when control transfers at the point of sale. The consignee may record the items as consignment inventory or as a liability representing the obligation to remit sale proceeds, depending on the applicable accounting framework. Costs such as shipping, insurance, and marketing may be allocated between the parties as agreed.

Consignments are common in various sectors, including retail, art, antiques, books, fashion, and home furnishings, as well as online marketplaces. They offer advantages such as lower carrying costs for the consignor and access to a wider product range for the consignee without upfront inventory purchases. Risks include potential unsold inventory, price control disputes, damage or loss while in the consignee’s care, and delayed cash flow for the consignor. Clear contracts and defined terms help manage these issues.