How to Account for Consigned Inventory

Jonny Parker
December 22, 2023

Consigned inventory refers to stocks stored with its consignee or purchasing company and not with its consignor or selling company. The consignee then acts as an agent to sell the goods of the product owner (consignor). Each time the goods are sold, the consignee makes payment, and all unsold items are returned to the consignor.  

When it comes to consignments, relationships are two-way as accounting for inventory is concerned. The goods translate as inventory in the consignor’s accounting records, though, and not in the consignees. 

How does consigned inventory work?

With consigned inventory, the product owner usually approaches the agent/retailer to negotiate the terms of the consignment contract. The contract will then dictate the cost of the products, the shipping and handling fees, and return mechanics. It will also include information about inventory management, deposits, commissions, and what to do when products are damaged or lost.  

After agreeing to the terms of the contract, the consignor will deliver the inventory to the consignee and earn money each time the consignee makes a sale. The consignee’s profit will depend on the price they set for a specific product or item.  

Managing consigned inventory<