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Definition
The term consigned goods refers to a marketing arrangement whereby one party provides merchandise to a second party, who is responsible for selling the merchandise. The seller of the merchandise is paid a commission, and may be reimbursed for selling expenses, in exchange for providing this service.
Explanation
Also known as sales on consignment, a consigned goods agreement consists of two parties working together to sell merchandise:
Consigner: this first party is responsible for providing the inventory (or stock) to the consignee, and retains legal ownership of the merchandise until it is sold.
Consignee: this party is responsible for the marketing and sale of the merchandise, and receives a commission from the consigner when the merchandise is sold. The consignee may also be reimbursed for certain selling expenses as part of this agreement.
This type of arrangement provides the consigner with a channel to market and sell their merchandise, while the consignee is able to carry an inventory of merchandise without purchasing it from the manufacturer. The consignee agrees to accept these goods without any liability, but promises to provide reasonable care and protection of the goods until sold.
Since the merchandise remains the legal property of the consigner until sold, the consigner must include the cost of this merchandise when calculating the value of its inventory. In the same way, the consignee must take care to exclude the consignment merchandise when valuing its inventory.
Related Terms
The financial accounting term inventory is used to describe the balance sheet line item that includes the value of raw materials, work in process, finished goods ready for sale, and returned goods that can be resold.
Moneyzine EditorNovember 6th, 2024
The term goods in transit refers to merchandise and other inventory items that have been shipped by the seller, but not yet received by the buyer. The value of goods in transit is an important component of a company's inventory, since the shipping arrangement will determine when legal title to the merchandise passes from the buyer to seller.Moneyzine EditorMay 31st, 2024
The term buyback agreement refers to a business arrangement whereby one party sells inventory to a second party, with the promise to repurchase the inventory at a future point in time. As part of a buyback agreement, the selling party is able to finance its inventory without reporting either the liability or asset on the company's balance sheet.Moneyzine EditorJanuary 9th, 2024
The term cost of inventory refers to the expenditures associated with merchandise placed in inventory. The categories of costs associated with inventory include manufacturing, product, and period costs.Moneyzine EditorJanuary 12th, 2024- The term special sales agreements refers to situations where legal transfer of ownership does not align with the economic risk of ownership. The three most common forms of these special sales agreements include installment sales, merchandise with high rates of return, and buyback agreements.Moneyzine EditorSeptember 21st, 2023
