When someone gives your organization an item to be sold with the agreement that you will pay an amount for the item after the sale is made, this involves two financial transactions in your accounting system: one upon the sale of the item, and one upon paying the consignor.
Before this item is sold, no transaction is recorded because the organization doesn't own the item, even if they are temporarily holding on to it - so items held on consignment are not inventory assets. After the item is sold, the organization records the full amount of revenue received net of the amount promised to the consignor and any commission fees. In the CDP, organizations generally use the Gallery Sales line for this net revenue.
In addition to recording the revenue, organizations should record an accounts payable liability on the balance sheet for the amount owed to the consignor for the sale of the item. This liability, will reverse once the consignor is paid. It's important to note that when organizations pay the consignor, there is no separate expense to record because the expense was included in the net revenue figure.
If your organization has a high volume of consignment sales, consult with an accountant to make sure you are accounting for all of the transaction details properly. |
