A business arrangement where goods are sent by the owner (consignor) to an agent (consignee) who sells them on the owner's behalf.
In a consignment arrangement, the consignor retains ownership of goods until they are sold by the consignee. The consignee acts as an agent, earning a commission on sales. Unsold goods remain the consignor's property and risk. This differs from a sale where ownership transfers immediately. Consignment is common in retail (clothing, electronics), art galleries, and auto dealerships. Accounting treatment requires separate consignment accounts to track goods sent, expenses, sales, and commission.
A textile manufacturer (consignor) sends 1,000 shirts worth ₹5,00,000 to a retailer (consignee). The retailer sells 800 shirts at ₹700 each = ₹5,60,000. Commission at 10% = ₹56,000. Consignor's profit: ₹5,60,000 – ₹4,00,000 (cost of 800 shirts) – ₹56,000 = ₹1,04,000. Remaining 200 shirts are still the consignor's stock.
Ensures accurate financial reporting and record-keeping
Helps maintain regulatory and tax compliance
Enables better-informed business decisions
Improves operational efficiency and cash flow management
In consignment, ownership stays with the consignor until the end customer buys. In a sale, ownership transfers to the buyer immediately. If goods don't sell, the consignee returns them (no loss). In a sale, unsold inventory is the buyer's problem.
Under GST, transfer of goods from consignor to consignee (even without sale) is treated as 'supply' if they are in different states. The consignor must issue a delivery challan and pay IGST. When the consignee sells to end customer, regular GST applies. This is a key compliance requirement.
A ratio that measures how many times a company's inventory is sold and replaced over a specific period, indicating sales efficiency and inventory management.
The coordination of all activities involved in sourcing, procurement, production, and delivery of products from raw materials to end customers.
The accounting principle that determines when and how revenue is recorded in the financial statements, based on when it is earned rather than when cash is received.
The direct costs attributable to the production or purchase of goods sold by a company during a specific period.
Let Laabam.One handle the complexity. From invoicing to GST filing, our ERP software makes accounting effortless.