# How do I keep the books when the goods aren't mine — I'm selling on consignment, or someone else is selling my goods?

Applies to: United States · Updated 2026-09-28

Control, not possession, decides whose inventory it is. On a true consignment the owner keeps and counts the goods as inventory until they sell or any set period ends. Where the holder keeps a commission from a price the owner sets or agrees, the owner records each sale at full price, with cost of goods sold and commission expense. The holder records no purchase or inventory, only its commission as income and the rest as owed to the owner.

## Whose balance sheet are the unsold goods on?

They belong to whichever party controls them, and having them on the shelf does not settle that. The FASB's revenue standard, issued as Accounting Standards Update 2014-09, says physical possession may not coincide with control of an asset, and that a consignee may have physical possession of an asset the other party controls. A product delivered to another party may be held on consignment if that party has not obtained control of it. The same standard lists indicators of a consignment, which include, but are not limited to, the following:

- The owner controls the product until a specified event, such as its sale to the holder's customer, or until a specified period expires.
- The owner can require the product's return or transfer it to a third party, such as another dealer.
- The holder has no unconditional obligation to pay for the product, although it might be required to pay a deposit.

Where your terms show these features, each item stays on the owner's balance sheet until it is sold, or until any period the terms set expires. If the terms make goods still unsold at the end of that period the holder's to keep or pay for, they then leave the owner's inventory and each side records them as goods the holder has bought; recording that purchase is a separate question.

## Is it a consignment or a sale with a right of return?

Control decides it, read from the terms against all of the indicators above rather than any one of them. A holder that must pay for the goods whether or not it sells them, and may only send unsold ones back for a refund or credit, points to what the FASB's 2014 revenue standard calls a sale with a right of return, in which the seller transfers control of the product and also grants the right to return it; a holder that pays only for what it sells, for goods the owner can recall, points to a consignment. In a sale with a right of return the goods are the holder's, and each side's books change:

- **The holder.** It has bought the goods, so it records an ordinary purchase, carries and counts them as its own inventory, and reports its sales gross with their cost.
- **The seller.** Under the FASB's 2014 revenue standard it recognizes revenue when it transfers the goods, in the amount of consideration it expects to be entitled to, so none for goods it expects to be returned; for those it records a refund liability and an asset for its right to recover the goods, with a corresponding adjustment to cost of sales, and it updates the refund liability at the end of each reporting period.

If the paperwork does not say who must pay for unsold goods, confirm it in writing with the other party before you post the goods as a purchase or the sales as your own, because the two readings put the goods on different balance sheets; meanwhile record the cash from each sale as it comes in, to a clearing account until the answer is confirmed. Recording an ordinary purchase and its cost is a separate question.

## What does the owner record?

Keep the goods in inventory at cost while the holder has them on consignment. AccountingTools' article on consignment accounting says there is no need for an accounting entry for the physical movement of goods, and that recording the change of location in the consignor's inventory records is usually sufficient. Give each holder its own location, or its own inventory account if your system has no locations, and list what went out: item, quantity, cost and agreed selling price.

Do not move the goods to cost of goods sold when they ship; that books a cost before any sale exists. The FASB's 2014 revenue standard rules out revenue on delivery of a product held on consignment, so the owner records each sale when the holder makes it, from the holder's sales report, not when the goods leave or when the settlement arrives. At that point AccountingTools' consignment accounting article has the consignor remove the goods from inventory with a debit to cost of goods sold and a credit to inventory, and record the holder's commission as a debit to commission expense.

Where the holder sells at a price you set or agree and keeps a commission, you control the goods until its customer buys them, which makes you the principal, and the FASB's 2016 update on principal-versus-agent considerations, Accounting Standards Update 2016-08, has a principal recognize revenue in the gross amount of consideration it expects to be entitled to: record the full price as sales and the commission as an expense. In that case, posting only the net settlement as sales understates both revenue and commission expense while the cash still looks right. Where the holder sets its own price and pays you a fixed amount per item sold, settle with your accountant whether your revenue is the customer's price or the amount you are paid before you post these sales.

## What does the holder record?

Nothing for the goods when they arrive: the holder has no unconditional obligation to pay for them, so there is no purchase, and they are not its inventory. If the terms require a deposit, it is not a purchase of the goods: the holder records it as an amount due back from, or to be set against what it will owe, the owner, and the owner records it as owed to the holder, not as a sale. AccountingTools' article on consignment accounting says the consignee has no need to record the consigned inventory, since the consignor owns it, and that a separate record of all consigned inventory may be useful for reconciliation and insurance. Keep that record by owner, listing items received, sold and returned and their agreed prices. Recording consigned goods as a purchase and as inventory inflates the holder's assets and costs and puts the same goods on two balance sheets.

At each sale, AccountingTools' definition of consignment has the consignee record the cash, commission income for itself, and a liability for the residual amount of the sale, which it must forward to the consignor. That liability is the owner's money in the holder's hands and never becomes the holder's income. Recording any sales tax the holder collects, and setting up the products and services list so these sales post to the right accounts, are separate questions.

## Does the holder report the sale gross or only its commission?

Control decides it. The FASB's 2016 update on principal-versus-agent considerations has the seller assess whether it controls each specified good before that good is transferred to the customer. A principal recognizes revenue in the gross amount; an agent, which does not control the goods another party provides, recognizes revenue in the amount of its fee or commission. Where control is not obvious, the 2016 update gives indicators that the seller is a principal, including these:

- It is primarily responsible for fulfilling the promise to provide the goods.
- It has inventory risk before the goods are transferred to the customer, or after transfer if the customer has a right of return.
- It has discretion in establishing the price the customer pays.

The FASB's 2016 update adds that an agent can have discretion in establishing prices in some cases, so setting the shelf price does not on its own make the holder a principal.

On a true consignment the owner controls the goods until the holder's customer buys them, so the holder never controls them first: it reports only its commission, and where it keeps that commission from a price the owner sets or agrees, the owner reports the gross sale. If the terms show the holder obtained control of the goods when it received them, it has bought them and reports the sale gross with their cost. Write down which facts decided it, because the answer governs every sale under the arrangement.

## What do the entries look like on both sides?

A potter places 10 bowls costing 30.00 each with a gift shop, which sells them at an agreed 80.00 and keeps a 40% commission. In the first month the shop sells 6. These entries are on the accrual basis, and sales tax is left out.

At placement nothing is posted to revenue or cost: the potter moves the 10 bowls to a gift-shop location in its inventory records, and the shop adds them to its record of consigned goods. A potter using a separate account instead of a location posts debit Inventory - gift shop 300.00, credit Inventory 300.00, and credits Inventory - gift shop, not a location, when the bowls sell.

The shop's monthly sales report shows 6 bowls sold for 480.00, a commission of 192.00 and 288.00 due to the potter:

| Books | Account | Debit | Credit |
|---|---|---|---|
| Potter | Receivable from gift shop | 288.00 | |
| Potter | Commission expense | 192.00 | |
| Potter | Sales | | 480.00 |
| Potter | Cost of goods sold | 180.00 | |
| Potter | Inventory (gift-shop location) | | 180.00 |
| Shop | Cash | 480.00 | |
| Shop | Commission income | | 192.00 |
| Shop | Payable to consignor | | 288.00 |

If the shop's till or sales system already posts each sale, do not post the Cash line again. Either set up consigned items so the till credits Commission income and Payable to consignor, or move the month's consigned sales out of Sales: debit Sales 480.00, credit Commission income 192.00 and Payable to consignor 288.00. Setting up the items is the products-and-services question.

When the shop pays the 288.00, each side clears its balance:

| Books | Account | Debit | Credit |
|---|---|---|---|
| Shop | Payable to consignor | 288.00 | |
| Shop | Cash | | 288.00 |
| Potter | Cash | 288.00 | |
| Potter | Receivable from gift shop | | 288.00 |

Afterwards the potter's records show 4 bowls, 120.00 at cost, at the gift shop and nothing receivable, and the shop's record shows the same 4 bowls and nothing owed.

The shop's entries are the same on the cash basis when its customers pay at the till, because the cash arrives at the sale. For the potter, IRS Publication 538 says that, generally, if you produce, purchase or sell merchandise you must keep an inventory and use an accrual method for sales and purchases of merchandise, with exceptions it sets out; whether one applies to you, and the timing that follows, is a separate question. Whatever the basis, each sale reaches income once, and the settlement is never recorded as a second sale.

## Which records must the arrangement produce?

The holder sees every sale, so the owner's books run on paperwork the holder produces. Each entry above depends on one of these records:

- **Placement and return record.** The owner prepares it when goods go out or come back, and the holder confirms it: each item, quantity and agreed price. AccountingTools' consignment accounting article also has the consignor periodically send the consignee a statement of the inventory that should be on its premises.
- **Sales report.** The holder produces it each period: each item sold, its date and price, any refund, and the commission.
- **Settlement statement.** The holder sends it with each payment: gross sales, commission, any other deduction the terms allow, and the net paid, traceable line by line to the sales report.
- **Statement of goods on hand.** The holder produces it at period end, and AccountingTools' consignment accounting article has the consignor request one at the end of each accounting period when it conducts a physical inventory count.

If a payment arrives without a sales report, ask for the report before posting, because without it neither the gross sale nor the commission can be recorded.

## How do I tie a settlement to the sales report?

Run these checks in order, whichever side you are on:

1. Tie the goods: goods on hand at the start, plus goods placed, less goods sold and returned, should equal the goods the holder reports on hand, and any difference is an unreported sale, goods lost or damaged, or an error in either side's placement, return or on-hand record; find which before posting it.
2. Check each line of the sales report for quantity times price, any refund, and the commission at the agreed rate.
3. Work out the net due as gross sales less refunds, commission and any other deduction the terms allow.
4. Compare the settlement received or paid with the net due, then confirm the receivable or payable has fallen to zero or to the sales not yet settled.

Against the example's sales report, a settlement of 240.00 fits two different errors, one sale left out (5 × 80.00 less 40%) or commission taken at 50%, so the check runs line by line rather than on totals.

This check proves the amount, not where the money goes: a message changing the owner's payment details needs verifying before anything is paid, as a separate question.

## Who counts the unsold goods at period end?

The owner includes them in its inventory; the holder leaves them out. IRS Publication 538 lists goods out on consignment among the merchandise to include in inventory, and goods consigned to you among the merchandise not to include. The owner uses the holder's statement of goods on hand, or its own count on site, and compares it with its records for that location. The holder counts consigned goods apart from its own and reports them to the owner. If both sides count the goods they are counted twice; if neither does they vanish from both, and neither error shows inside one party's books. Running the count and dealing with a difference is a separate question.

## What changes when a marketplace or fulfillment operator sells the goods?

Goods in an operator's warehouse stay in your inventory while you control them, on the same test as a consignment; record the warehouse as another location, not a sale. When the operator sells and pays out net of its fees, do not post the net deposit as revenue: if you control the goods until the customer buys them and set the price, you are the principal and report the gross sale. From the operator's sales or settlement report, post each sale at its price, and each refund, fee and amount withheld, on its own line, and the payout as cash; the lines you post should net to the deposit. If all you have is the deposit, get the detailed report first. Recording marketplace sales, and tying a payout to the sales behind it, are separate questions.

## How are goods returned at the end, damaged or short, recorded?

When unsold goods come back, the owner moves them back to its own location at the same cost and the holder closes them out of its consigned-goods record; no sale, cost or commission arises. Goods neither sold nor returned surface in the first tie-out check; goods that come back damaged still tie on quantity and are found only when the owner inspects what is returned. Whether, and how much, the holder pays for missing or damaged goods is set by the arrangement's terms. The owner takes the cost of goods it can neither sell nor recover out of inventory, as with any count difference.

## Sources

1. Financial Accounting Standards Board — *Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), Section A*, No. 2014-09, May 2014. https://storage.fasb.org/ASU%202014-09_Section%20A.pdf
2. Financial Accounting Standards Board — *Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)*, No. 2016-08, March 2016. https://storage.fasb.org/ASU%202016-08.pdf
3. Internal Revenue Service — *Publication 538, Accounting Periods and Methods*, Publication 538 (01/2022). https://www.irs.gov/publications/p538
4. AccountingTools (Steven Bragg) — *Consignment accounting*, May 14, 2026. https://www.accountingtools.com/articles/consignment-accounting
5. AccountingTools (Steven Bragg) — *Consignment definition*, May 06, 2026. https://www.accountingtools.com/articles/consignment

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