Consignment vs Sale: Key Accounting Differences
Let's compare consignment and sale transactions on ownership transfer, relationship, risk transfer, and accounting entries.
head-to-Head Comparison
| Basis | Consignment | Sale |
|---|---|---|
| Ownership of Goods | Remains with the sender (Consignor) until the goods are sold to the end customer by the agent. | Transfers immediately to the buyer upon the execution of the sale. |
| Relationship of Parties | Principal and Agent (Consignor and Consignee). | Debtor and Creditor (or Buyer and Seller). |
| Risk of Goods | Remains with the consignor (unless consignee is negligent or has a del credere commission). | Transfers immediately to the buyer along with ownership. |
| Unsold Goods | Consignee can return unsold goods to the consignor. | Buyer cannot return goods to the seller (unless there is a return agreement or breach). |
The 'Revenue Recognition' Trap
In consignment, sending goods to the consignee is **not** a sale. Revenue is recognized **only** when the consignee sells the goods to the third-party customer. Unsold goods with the consignee are counted as **consignor's inventory** at cost.
Common Ground (Similarities)
- Both are methods of distributing and selling goods to customers.
- Both generate revenue and marketing reach for the producer/manufacturer.
Test Your Understanding
Q1: Whose inventory is the unsold stock lying with the consignee at year-end?
Consignee's inventory
Consignor's inventory ✅
Shared inventory
Written off
Explanation: Since ownership remains with the consignor, the unsold stock is counted in the consignor's year-end balance sheet.