Consignment inventory: establish who owns stock before closing the books

Consignment needs two records: where the goods are and which party owns them. If a retailer holds your products until they sell, a shipment to the retailer may leave an inventory obligation for your business. If you hold a supplier's material until you use it, your warehouse count may include goods that your business has not yet purchased.

Microsoft's inbound-consignment documentation illustrates this distinction by recording vendor-owned physical quantities separately and changing ownership at the defined consumption event. The exact event in your business comes from the actual agreement and accounting assessment. Do not use a shipping label alone to settle it.

Start by identifying the consignor, consignee, goods covered, permitted locations, settlement basis, reporting calendar, and return or loss terms. Give finance the signed agreement and later amendments. A sales team summary may omit the clause that determines what happens to unsold or damaged units.

For goods your company owns at another location, maintain a stock record by recipient and item. For goods another party owns at your location, keep quantities identifiable without blending them into company-owned stock. Labels, separate bins, or a reliable ownership field can help operations preserve that distinction.

The counting process should include both categories, with ownership marked. Excluding vendor-owned goods from the accounting balance does not mean ignoring them operationally. Someone still needs to explain missing units, damage, and unauthorized use under the agreement.

Request a movement report that starts with opening units, adds receipts, and identifies units sold or consumed, returned, transferred, lost, or still held. Separate the activity date from the report date. A retailer's late report can contain sales from the prior month even though the settlement arrives in the current one.

In a hypothetical arrangement, you send 400 units to a retailer. Its confirmed report shows 75 sold to customers and 25 returned to you. With no other movements, 300 should remain at that retailer. Reconcile the 25 returned units to your receiving record and the 75 reported sales to the agreed sales or settlement documentation.

If the retailer pays for 70 units, the five-unit difference belongs in the settlement investigation. It should not automatically change the physical stock count to 305. Quantity reporting and payment reconciliation can disagree for a reason that has nothing to do with lost inventory.

A consignment statement may show customer selling prices, commissions, freight, returns, and amounts payable. Preserve that detail. Net cash received does not tell the accountant whether the business reports a gross sale, a fee, a refund, or a remaining receivable.

IFRS 15 bases revenue on the transfer of promised goods or services and the consideration to which the entity expects to be entitled. If that framework applies, use the contract and transfer evidence in the revenue assessment. A U.S. GAAP reporter should document the applicable ASC 606 conclusion rather than treating an operational sell-through report as an accounting policy.

Ask the reviewer to identify the event that triggers revenue, the treatment of the other party's fee, and the handling of customer returns after settlement. Preserve the conclusion with the agreement. Do not change between gross and net presentation merely because one recipient sends a more detailed statement than another.

An old consignment balance can contain discontinued products, expired seasonal stock, damage, or a report that has not been updated. Ask for a count and condition confirmation before assuming those goods remain saleable. Identify the party responsible for inspection and the evidence available if the goods cannot be physically accessed.

IAS 2 requires an inventory measurement review that considers cost and net realizable value for IFRS reporting. The accountant needs the expected selling or recovery amount and costs of completion or sale. A consignee's optimistic retail price is not enough when the goods require repackaging, discounting, or return freight.

Agree what happens when the arrangement ends: the final sale-report cutoff, return authorization, freight responsibility, missing-stock claims, commissions, and final payment. Keep goods in transit visible until receipt or another supported disposition resolves them. An account can show zero cash due while unsold goods remain at the other party's premises.

Retain the agreement, ownership conclusion, monthly movement reports, count confirmations, settlement detail, and final reconciliation together. The next person reviewing the account should be able to follow one unit from dispatch through sale, return, or loss without reconstructing the arrangement from email.