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Accounting For Consignment Sales

Consignment sales involve a consignor sending goods to a consignee, who sells the goods on behalf of the consignor and earns a commission. The consignor retains ownership of the goods until they are sold, and specific journal entries are required for both parties to accurately record transactions. Revenue is only recognized when the goods are sold to the final customer, with unsold goods remaining in the consignor's inventory.

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38 views2 pages

Accounting For Consignment Sales

Consignment sales involve a consignor sending goods to a consignee, who sells the goods on behalf of the consignor and earns a commission. The consignor retains ownership of the goods until they are sold, and specific journal entries are required for both parties to accurately record transactions. Revenue is only recognized when the goods are sold to the final customer, with unsold goods remaining in the consignor's inventory.

Uploaded by

sluggishyomi23
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Accounting for Consignment Sales

1. What are Consignment Sales


Consignment sales happen when the owner of goods, called the consignor, sends goods to
another party, called the consignee, who will try to sell the goods on behalf of the consignor. The
consignee does not own the goods and only earns a commission when the goods are sold.

2. Key Parties Involved


The consignor is the one who owns the goods and records the revenue.
The consignee is the one who receives the goods, sells them, and earns a commission.

3. Ownership of Goods
Goods remain the property of the consignor until they are sold to the final customer. This means
that the consignor still includes the goods in its inventory until the sale happens.

4. Journal Entries in the Books of the Consignor

When goods are sent to the consignee:


No revenue is recorded yet because no sale has occurred. The consignor may make a
memorandum entry or transfer goods to a consignment inventory account.

If freight or shipping cost is paid by the consignor:


Debit Consignment Out
Credit Cash or Accounts Payable

When consignee reports a sale:


Debit Accounts Receivable from Consignee
Credit Sales Revenue

To record cost of goods sold:


Debit Cost of Goods Sold
Credit Consignment Inventory

To record consignee’s commission and other expenses:


Debit Commission Expense or Consignment Expense
Credit Accounts Payable to Consignee

5. Journal Entries in the Books of the Consignee

No entry is made when goods are received, since the consignee does not own the goods.

When goods are sold:


Debit Cash or Accounts Receivable
Credit Payable to Consignor
To record commission earned:
Debit Payable to Consignor
Credit Commission Income

6. Unsold Goods
Unsold goods at the end of the period are still included in the consignor’s inventory. A physical
count is usually done to confirm this, and no revenue is recognized until the sale is complete.

7. Reports and Settlement


The consignee prepares a consignment report showing how many goods were sold, the total sales
amount, any expenses or commissions, and the amount payable to the consignor. Based on this
report, both parties make the necessary entries.

8. Conclusion
In consignment sales, the key principle is that revenue is recognized only when the goods are
sold to the final customer. The consignee is only an agent and does not record inventory. Proper
recording of commissions, expenses, and cost of goods sold is important to ensure accurate
reporting by both the consignor and consignee.

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