Accounting for Consignments in QuickBooks
Many Retail stores sell inventory on consignment. It’s important to keep track and to know how much inventory you have in stock, who it belongs to and where it’s all located.
Let’s start our discussion of Accounting for Consignments in QuickBooks with a few basic definitions.
- Consignment – the act of consigning, which is placing any materials in the hands of another.
- Consigned Inventory – the goods shipped by the Consignor to the Consignee.
- Consignor – the owner of the inventory – the person who hands over the goods to be sold.
- Consignee – the seller of someone else’s goods – the person who receives the goods to sell.
There are two sides to the consignment equation – Consignor and Consignee. In this article, we will discuss the situation from the viewpoint of the Consignor. Note: We will also assume that you are using QuickBooks Premier and not Pro or Enterprise.
As the Consignor, you own the inventory – it’s your asset and your responsibility and if the product is damaged, it’s your loss. You are the party at risk and have an insurable asset. You’ve consigned it, or handed it over, to someone else who has agreed to sell it on your behalf in exchange for a pre-determined fee or percentage as well as reimbursable out-of-pocket expenses.
In QuickBooks, it’s as simple as creating a separate section in your Item List for Consigned Inventory and listing each Item as a Sub-Item with an identifier (Cons) that categorizes it as consigned. These are still Inventory Parts and are mapped to the same Cost of Goods Sold, Income and Inventory accounts as your other Inventory Items. Note: You may wish to create a separate Inventory Asset account for your Consigned Inventory, however this is optional.
To transfer the Items from your Regular Inventory to Consigned Inventory, it’s an Inventory Adjustment for Quantity only – the value of your inventory does not change, only the location of the Items for sale. Adjust Inventory/Quantity On Hand is located under the Vendor Menu.
In addition to creating an Inventory Adjustment, you will need to create a Sales Order to the Consignee for the Consigned Inventory. Create Sales Order is located under the Customer Menu. This is a non-posting entry in QuickBooks and will show the Inventory as committed to the Consignee and not available for sale to others on an Inventory Stock Status Report.
As you receive reports of Sales of your Consigned Inventory from the Consignee, or better yet, as you conduct a physical inventory of your Consigned goods at the Retail location, you will create an Invoice in QuickBooks from the Sales Order to the Consignee to bill for your pre-determined percentage of the sale, less reimbursable expenses.
These are the steps to account for Consignments from the perspective of the Consignor.
There are many more steps involved in accounting for Consignments from the angle of the Consignee. We’ll cover these in a later edition of our newsletter – stay tuned.
As always, if you have any questions on any of the procedures for recording Consignments in QuickBooks, please contact us. We’re happy to help.