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What journal entry is recorded by the consignor when the consignee sells the good or service?

You need to understand that when the product is initially transferred from the consignor to the consignee, there is no sale, and the consignor would not record any impact to the income statement. The consignor only records the sale when the consignee sells the goods to a 3rd party.

When the inventory is sold, the consignor records the revenue and has to recognize the commission expense for the commission fee paid to the consignee. The consignor would remove the inventory from the balance sheet and recognize the cash. On the income statement, the consignor would debit cost of goods sold and commission expense, with the offset to sales revenue.

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  • What journal entry is recorded by the consignor when goods are shipped to a consignee?

    When a consignor sends goods to a consignee, ownership is not transferred. The consignor would record an entry to change the classification of inventory from on hand (in their warehouse) to inventory on consignment. The accounting records should clearly reflect the value of any inventory that is on consignment as inventory on consignment needs to be disclosed in the financial statements.

  • When does a consignor recognize revenue in a consignment relationship?

    A consignor does not recognize revenue when the goods are transferred to a consignee. Rather, the consignor would only recognize revenue when the goods are sold by the consignee to a 3rd party (i.e. customer). When the consignee sells the goods to a 3rd party, that is the point at which the consignee can record commission expense for selling the goods on behalf on the consignor.

  • Who owns the inventory in a consignment relationship?

    The consignor (the principal) will retain control of the inventory throughout the duration of a consignment sale relationship. The consignor sends the goods to the consignee, but the consignee never actually obtains title or control of the goods. The benefit of this relationship for the consignee is that they can return unsold goods to the consignor.