Accounting for Consigned Inventory

What Is Consignment Inventory

Inventory that is placed in the possession of another for the purpose of selling or delivering it is consignment inventory. Any thing or person that is to be delivered is 'consigned'. Consigned items have become more notably those physical possessions that are no longer wanted by the owner who wishes to dispose of them for compensation. The most often consigned items are clothing, furniture, art, jewelry and autos. A less thought of 'consignment' is a person (like a prisoner or a diplomat) who is placed in the care and custody of a consignor for delivery.

Consigned Inventory Definition

Consigned Inventory is property given to a custodian that remains the possession of the supplier. The holder of the property actually purchases the property after it has been sold or consumed. Consignment is the act of consigning or placing a thing (or even a person) in the custody of another until the property or person is sold or delivered. The consignee is the owner of the goods and the consignor is there person on entity responsible for maintaining, selling and/or delivering the item(s). Even the transfer of a prisoner is a 'consignment'. Consignment is derived from 'consign' which in French (consigner) and Latin (consignare) - to affix a seal. hence, In Late Latin it meant to transmit or hand over - deliver.

Consignment Inventory Accounting

Accounting for consigned items can be simple or complex, depending upon the item consigned and the end objective. Accounting for consigment stores adds complexity because store owners typically discount unsold items, often aggressively, to keep selling. This requires discount schedules (when and by how much to discount), applying those discounts, repricing price tags, returning or disposing of unsold items, then making sales, computing the consignor's share of sales proceeds (called a 'settlement) then distributing payment, often to a large number of consignors.

Consignment Inventory Management

Sticking with the consigning of physical objects, inventory items are usually 'checked in', given an inventory ID number and 'added to inventory' which means displaying the items (if they are to be sold) and often adding them as inventory records in a software database. Often it is also necessary for the consignor to prepare the item(s) for sale should the need touch up or repair. Most consignors are too busy for product preparation and will refuse items that are no 'shelf ready'. Items must be protected from damage and theft and it is the consignor's obligation to make due effort to get the best price for each consign.

Consignment Inventory Agreement

The Agreement, when signed by both parties, is a legally-binding contract. It typically lists the names and contact information of the parties, the date, the items consigned, the consignor's share of the sales proceeds, the duties and responsibilities of both parties, the duration of the agreement and provisions for options after term expiration. It can include any other provisions that both parties agree to. Software programs often contain a agreement that can be printed for each new consignor. Sometimes an Addendum to the Agreement is also available which may be used in lieu of creating a new agreement.