Consignment accounting journal entries split cleanly between the two parties: the consignor keeps the goods on its books and records revenue, cost of goods sold, and commission expense only after the consignee sells to an end customer, while the consignee records cash, a payable to the consignor, and commission income. Nothing hits either general ledger simply because goods changed hands physically. The entries below walk through a full cycle for each side using one worked example.
The example: the consignor ships $10,000 of finished goods to a consignee and pays $500 in freight. The consignee sells the goods for $15,000, earns a 20% commission, and pays $200 of advertising on the consignor’s behalf that will be reimbursed.
Consignor Journal Entries
Shipping the Goods
Inventory leaves the warehouse but stays on the consignor’s balance sheet. The entry reclassifies it into an account that flags the goods as out on consignment:
- Debit Inventory on Consignment $10,000
- Credit Finished Goods Inventory $10,000
Outbound freight the consignor pays is capitalized into the consigned inventory cost because it is needed to get the goods into position for sale:
- Debit Inventory on Consignment $500
- Credit Cash (or Accounts Payable) $500
Inventory on Consignment now carries $10,500, the full cost tied up in the goods.
Recording the Sale
Revenue recognition waits until the consignee sells the goods to an unaffiliated end customer and reports the sale on an account sales statement. When the consignor learns that all the goods sold for $15,000, two entries follow.
Book the revenue:
- Debit Accounts Receivable — Consignee $15,000
- Credit Sales Revenue $15,000
Match the cost against it:
- Debit Cost of Goods Sold $10,500
- Credit Inventory on Consignment $10,500
The $10,500 includes the original $10,000 product cost plus the $500 of capitalized freight. Both entries go in the period the end-customer sale occurs.
Commission and Reimbursable Expenses
The consignee earned $3,000 (20% of $15,000) and paid $200 in advertising on the consignor’s behalf. Both are expenses to the consignor and reduce the amount the consignee owes:
- Debit Commission Expense $3,000
- Debit Advertising Expense $200
- Credit Accounts Receivable — Consignee $3,200
The consignee now owes net proceeds of $11,800.
Receiving the Cash
- Debit Cash $11,800
- Credit Accounts Receivable — Consignee $11,800
Net profit on the transaction: $1,300 ($15,000 revenue less $10,500 cost of goods sold, $3,000 commission, and $200 advertising).
Consignee Journal Entries
Receiving the Goods
No journal entry. The consignee owns nothing and owes nothing at receipt. Most consignees track consigned goods with a memorandum entry or an off-balance-sheet log for physical count and custody purposes, but nothing touches the general ledger.
Selling to the End Customer
Cash comes in, but the full amount is owed to the consignor. The consignee does not book sales revenue, because it is acting as an agent:
- Debit Cash $15,000
- Credit Payable to Consignor $15,000
Recognizing Commission Income
The consignee keeps its $3,000 commission and recovers the $200 of advertising it paid earlier. Both reduce the liability to the consignor:
- Debit Payable to Consignor $3,200
- Credit Commission Income $3,000
- Credit Cash $200
The $200 credit to cash reverses the earlier advertising outlay. The $3,000 commission income is the only revenue the consignee records from the entire transaction.
Remitting the Net Proceeds
- Debit Payable to Consignor $11,800
- Credit Cash $11,800
Payable to Consignor clears to zero. The consignee’s only income statement impact is $3,000 in commission income.
Returns of Unsold Goods
Consignment agreements almost always let the consignee return unsold merchandise. When goods come back, the consignor reverses the original reclassification. For $2,000 of returned goods at cost:
- Debit Finished Goods Inventory $2,000
- Credit Inventory on Consignment $2,000
The consignee records nothing for a return, just as it recorded nothing on receipt. It removes the items from its memorandum tracking.
If returned goods are damaged, obsolete, or otherwise worth less than their carrying value, the consignor writes the inventory down on return. The consignor absorbs that loss because it never stopped owning the goods. Return freight is typically expensed by the consignor unless the agreement places that cost on the consignee.
Why the Split Looks This Way Under ASC 606
ASC 606 treats an arrangement as a consignment, and blocks the consignor from booking revenue on shipment, when the consignor still controls the product until the consignee sells it or a specified period expires, when the consignor can demand the goods back or redirect them, and when the consignee has no unconditional obligation to pay for the goods just by receiving them. Control transfers at the end-customer sale, which is why every revenue and cost entry above is dated to that event rather than the shipment.1FASB. Revenue from Contracts with Customers (Topic 606)
The same standard splits the revenue between the parties through the principal-versus-agent analysis. The consignor is the principal, controls the inventory, bears the risk of unsold goods, and reports the full sale price. The consignee is the agent, never controls the goods, has no inventory risk, and reports only its commission. Some arrangements complicate this: if the consignee has pricing discretion, credit risk on customer payments, or meaningful inventory risk, it may be a principal instead and would then record gross revenue and cost of goods sold. The entries above assume the standard agency model.1FASB. Revenue from Contracts with Customers (Topic 606)
What the Entries Produce on the Financial Statements
Consignor
Inventory on Consignment sits on the balance sheet as a current asset, separate from regular inventory. SEC registrants are expected to present it under a distinct caption such as “Inventory Consigned to Others” so readers can see how much inventory is physically out of the company’s possession.
On the income statement, the consignor shows $15,000 in sales revenue, $10,500 in cost of goods sold, and $3,200 in selling expenses (commission plus reimbursed advertising). Gross profit is $4,500; net profit after selling expenses is $1,300.
Consignee
Consigned goods never appear as an asset. The balance sheet moves only briefly, while the consignee holds collected cash and the matching payable to the consignor. Both clear on remittance.
The income statement shows $3,000 in commission income and no cost of goods sold, because the consignee never purchased the inventory. Reporting gross sales from consigned goods would overstate the top line and misrepresent the business to anyone comparing it against actual product sellers.
A Sales Tax Trap to Watch
The entries above are federal-GAAP mechanics; they say nothing about state tax exposure. Storing inventory in a state where the consignor has no office or employees can still create nexus. More than 20 states treat inventory held at a third-party location as physical presence sufficient to require the owner to register, collect, and remit sales tax. Each consignee location in a different state can trigger a separate filing obligation. Checking the rules in every state where consigned goods will sit is worth doing before the first shipment ships.