Consignment accounting journal entries follow one guiding rule: the consignor keeps the goods on its balance sheet until the consignee sells them to an end customer, and the consignee never records the goods as inventory at all. Shipment to the consignee is a reclassification for the consignor and a memorandum note for the consignee. Revenue, cost of goods sold, and commission expense all wait for the actual sale.
Getting the timing wrong misstates both sets of books. So before recording anything, confirm the arrangement really is a consignment.
Is It Actually a Consignment
Under ASC 606, delivering a product to a dealer or distributor is not automatically a sale. If the recipient has not obtained control, the arrangement is a consignment and revenue must wait.1FASB. Revenue from Contracts with Customers (Topic 606) – Section 606-10-55-79
ASC 606-10-55-80 gives three indicators:
- The product remains controlled by the consignor until a specified event, such as a sale to the dealer’s customer or the expiration of a holding period.
- The consignor can require the product’s return or transfer it to a different dealer.
- The consignee is not unconditionally obligated to pay for the product, though a deposit may be required.
When two or three of these are present, the arrangement almost certainly qualifies as a consignment and the entries below apply.2FASB. Revenue from Contracts with Customers (Topic 606) – Section 606-10-55-80
A sale-or-return arrangement is different. There, the buyer actually purchases the goods with a right to return them; title and risk pass at delivery, and the buyer records inventory. Under UCC Section 2-326, sale-or-return goods are subject to the buyer’s creditors while in the buyer’s possession.3Legal Information Institute. UCC 2-326 – Sale on Approval and Sale or Return For accounting, sale-or-return triggers revenue at delivery (with a return allowance); a true consignment defers revenue until the end customer buys.
Consignor’s Journal Entries
The consignor owns the goods throughout, so the consignor carries the heavier accounting load: tracking inventory sitting at someone else’s location, capitalizing the right costs, and recognizing revenue only when control finally transfers.
Shipping Goods to the Consignee
When goods leave for the consignee, the consignor reclassifies them from regular inventory into a separate “Inventory on Consignment” account. This keeps the balance sheet accurate and gives management visibility into how much stock sits at consignee locations.
Debit: Inventory on Consignment
Credit: Finished Goods Inventory
No revenue entry. The consignee has not obtained control under ASC 606.1FASB. Revenue from Contracts with Customers (Topic 606) – Section 606-10-55-79
Inventoriable Costs Paid by the Consignor
Costs incurred to get goods to the consignee’s location, such as outbound freight, special packaging, and insurance in transit, attach to the inventory unit cost.
Debit: Inventory on Consignment
Credit: Cash
Selling-effort costs work differently. A national advertising campaign or general administrative overhead is expensed as incurred. Capitalizing selling costs would overstate inventory and delay expense recognition.
Recording the Sale to the End Customer
When the consignee reports that goods have sold, the consignor records the full sales price as gross revenue. Under ASC 606’s principal-versus-agent guidance, the consignor is the principal: it controls the goods before transfer, bears inventory risk, and typically sets or approves the selling price. Commission owed to the consignee is a separate expense, not a reduction to revenue.
Revenue:
Debit: Receivable from Consignee
Credit: Sales Revenue
Cost of goods sold (at the loaded consignment unit cost, which includes the capitalized freight and packaging):
Debit: Cost of Goods Sold
Credit: Inventory on Consignment
Commission:
Debit: Commission Expense
Credit: Receivable from Consignee
Reimbursable Expenses and Settlement
Reimbursable costs the consignee incurred, such as local advertising or minor storage fees, are selling expenses of the consignor. They are recorded when the account sales statement arrives.
Debit: Consignment Selling Expense
Debit: Cash (net remittance)
Credit: Receivable from Consignee
The Account Sales statement from the consignee is the source document for all of this. It shows gross sales, commission, authorized expenses, and the net due, and it ties the two parties’ books together.
Returns of Unsold Goods
Unsold goods coming back from the consignee are simply reclassified into regular inventory. No revenue or expense hits, because the consignor owned the goods all along.
Debit: Finished Goods Inventory
Credit: Inventory on Consignment
One point worth flagging: the consignor bears the risk of obsolescence and market decline on consigned inventory. If returned goods have lost value, the consignor takes the write-down. The consignee has no exposure because it never owned the goods. That matters for seasonal or trend-sensitive products.
Consignee’s Journal Entries
The consignee is an agent, not an owner, and its accounting is short.
Receipt of Goods
No journal entry. The consignee updates an off-balance-sheet memorandum noting the quantity received. This tracks what the consignee holds without creating an asset or liability, since neither exists.
Expenses Paid on the Consignor’s Behalf
Reimbursable costs are receivables from the consignor, not the consignee’s own operating expenses.
Debit: Receivable from Consignor
Credit: Cash
Sale to the End Customer
The consignee recognizes revenue only on its commission, not the gross sales price. The rest is a payable to the consignor.
Debit: Cash
Credit: Payable to Consignor
Credit: Commission Revenue
Remittance
The consignee remits gross sales minus commission and minus reimbursable expenses.
Debit: Payable to Consignor
Credit: Receivable from Consignor
Credit: Cash
A Worked Example
Consignor ships 10 units costing $200 each. Commission is 20%. Six units ultimately sell at $500 each.
Shipment
Consignor:
Debit: Inventory on Consignment — $2,000
Credit: Finished Goods Inventory — $2,000
Consignee: no entry; memorandum records 10 units received.
Freight and Insurance Paid by the Consignor
Consignor pays $100 to ship the goods:
Debit: Inventory on Consignment — $100
Credit: Cash — $100
Loaded unit cost is now $210 ($2,100 ÷ 10 units).
Advertising Paid by the Consignee
Consignee spends $50 on local advertising:
Debit: Receivable from Consignor — $50
Credit: Cash — $50
Sale of Six Units at $500
Gross sales are $3,000; commission is $600.
Consignee:
Debit: Cash — $3,000
Credit: Payable to Consignor — $2,400
Credit: Commission Revenue — $600
Consignor, on receipt of the account sales statement:
Revenue:
Debit: Receivable from Consignee — $3,000
Credit: Sales Revenue — $3,000
Cost of goods sold (6 × $210 = $1,260):
Debit: Cost of Goods Sold — $1,260
Credit: Inventory on Consignment — $1,260
Commission:
Debit: Commission Expense — $600
Credit: Receivable from Consignee — $600
Settlement
Net remittance: $3,000 − $600 − $50 = $2,350.
Consignee:
Debit: Payable to Consignor — $2,400
Credit: Receivable from Consignor — $50
Credit: Cash — $2,350
Consignor:
Debit: Cash — $2,350
Debit: Consignment Selling Expense — $50
Credit: Receivable from Consignee — $2,400
After settlement, Inventory on Consignment shows $840, the 4 unsold units at $210 each. That balance stays on the consignor’s balance sheet.
Two Issues the Entries Alone Won’t Show
Correct journal entries do not protect the consignor from two exposures that consignment arrangements create.
UCC-1 Filing
Under UCC Article 9, a consignment of goods worth $1,000 or more per delivery to a merchant who sells goods of that kind under its own name is treated as a secured transaction. The consignor’s interest is a purchase-money security interest in inventory.4Legal Information Institute. UCC 9-102 – Definitions and Index of Definitions Unless the consignor perfects that interest by filing a UCC-1 with the appropriate state office, its ownership claim has no priority over the consignee’s other creditors. UCC Section 2-326 spells out the consequence: without the filing, the goods are treated as belonging to the consignee for purposes of creditor claims, and in a bankruptcy the consignor drops to the back of the unsecured line.3Legal Information Institute. UCC 2-326 – Sale on Approval and Sale or Return Filing a UCC-1 is inexpensive; skipping it is where many consignors get burned.
Sales Tax Nexus
Storing inventory at a consignee’s location in another state can create sales tax nexus for the consignor. In most states, property stored for sale in the state qualifies as physical presence and triggers a duty to collect and remit sales tax on sales to customers in that state. This physical nexus rule predates the 2018 Wayfair decision and applies whether or not the consignor has employees, an office, or any other tie to the state. Consignors placing goods with consignees across multiple states should evaluate registration obligations in each one before assuming the accounting is the whole compliance picture.