Journal Entries for Consignment Sales: A Complete Guide for Consignors and Consignees

When a business sells goods on consignment, the accounting can feel more complex than a standard sale. The consignor (the owner of the goods) retains title until the consignee (the seller) finds a buyer — and each party records different journal entries at each stage. This guide walks through the complete accounting lifecycle for consignment sales, from shipment to final settlement.

How Consignment Sales Work

A consignment arrangement follows a clear sequence:

1. The consignor ships inventory to the consignee for display or resale.
2. The consignee holds the goods but does not own them — title remains with the consignor.
3. When the consignee sells the goods to a customer, the consignor recognizes revenue.
4. The consignee deducts a commission and remits the net proceeds to the consignor.

This structure is common in retail (clothing, furniture, art galleries), where the consignee provides shelf space and market access without bearing inventory risk. For a detailed look at how the consignor tracks goods still held by the consignee, see our guide on journal entries for consignment inventory.

Journal Entries for the Consignor

Step 1: Ship Goods to Consignee

When the consignor transfers inventory to the consignee, no sale has occurred. The inventory moves to a separate consignment inventory account — still an asset on the consignor's balance sheet.

Step 2: Consignee Sells the Goods

When the consignee reports a sale, the consignor recognizes revenue and the related cost of goods sold. The commission owed to the consignee is recorded as a selling expense.

Step 3: Receive Payment from Consignee

When the consignee remits the net proceeds, the consignor settles the receivable. For more on cash receipt entries, see our journal entries for cash receipts guide.

Journal Entries for the Consignee

The consignee never records the consigned goods as inventory or an asset. Instead, the consignee tracks a liability to the consignor and recognizes commission income at the time of sale.

Step 1: Receive Goods on Consignment

No journal entry is needed at this stage. However, the consignee should maintain a memorandum record of consigned goods received — quantities, descriptions, and agreed selling prices — for internal tracking.

Step 2: Sell the Consigned Goods

Step 3: Remit Net Proceeds to Consignor

Key Accounting Considerations

Revenue Recognition Timing

Under ASC 606, the consignor recognizes revenue when control transfers to the end customer — not when the goods ship to the consignee. The consignee is an agent, not a principal, and the consignor must assess whether the arrangement creates a distinct performance obligation. Revenue is recognized at the gross selling price, with the commission treated as a separate expense — unless the arrangement makes the consignee the principal, in which case net reporting applies.

Unsold Goods at Period-End

Any consigned goods not yet sold at the balance sheet date remain in the consignor's consignment inventory account. The consignor must include these goods in its physical inventory count and ensure they are valued at the lower of cost or net realizable value. The consignee simply maintains its memorandum record — no balance sheet impact.

Commission Structures

Commissions may be structured as a flat percentage of the selling price, a tiered rate (which increases with sales volume), or a fixed fee per unit sold. The consignor records the commission as a selling expense (not a reduction of revenue, unless the consignee is the principal). The consignee records commission revenue at the point of sale. For more on commission accounting, see our guide on journal entries for sales commissions.

Returns and Allowances

If an end customer returns a consigned item, the consignor must reverse the sale and restore the inventory. The consignee reverses the commission and liability. The accounting mirrors a standard sales return, but with the added complexity of the consignment relationship. For warranty-related returns, check our guide on journal entries for warranty claims.

Consignment Sales vs. Standard Sales: Comparison

Frequently Asked Questions

Is consignment inventory an asset for the consignee?

No. Consignment inventory is not recorded on the consignee's balance sheet. The consignee holds the goods as an agent and only records a liability (payable to the consignor) when a sale occurs. The goods remain the consignor's asset until sold to an end customer.

How does the consignor record unsold consigned goods at year-end?

The consignor includes unsold consigned goods in its Consignment Inventory account — a current asset. During the physical inventory count, the consignor must coordinate with each consignee to confirm quantities on hand and ensure valuation at the lower of cost or net realizable value.

Can a consignor use the cost method instead of the inventory transfer method?

Yes. Some businesses use a memorandum approach where they do not create a separate consignment inventory account. Instead, they track consigned goods in a subsidiary ledger or spreadsheet and only record journal entries when sales occur. Both methods are acceptable under GAAP, but the inventory transfer method (shown above) provides stronger internal control.