Consigned Goods

Consigned goods are given by one company (the consignor) to another company (the consignee) for the consignee to sell to the end consumer. Goods may be consigned because the consignee is physically closer to the consumer or because consignment enables the consignor to get a wider distribution of goods than the company could achieve on its own.

Ownership never transfers to the consignee when goods are consigned. Instead, title passes directly from the consignor to the end consumer. Therefore, the consignee never bears the risk of loss unless a contract passes that risk to it. Consigned goods should be reported as inventory on the records of the consignor because it bears the risk of loss.

Goods out on consignment belong in the inventory of the consignor company because the ownership never transfers to the consignee. The goods should be carried on the consignor’s balance sheet at the cost the consignor paid for the goods plus any shipping costs the consignor paid to get the goods to the consignee company that will sell the goods. The shipping costs to the consignee are costs of making the goods available for sale to the customer and thus are “inventoriable” costs.

Goods held on consignment do not belong to the company that holds them (that is, the consignee) and therefore should not be included in the consignee’s inventory.