Intuit has an online article about how to record consignment sales, but there are some elements of it that I’m just not loving.
First, that article covers accounting strictly from the point of view of the consignee. The consignor also needs to track how many widgets they have out on consignment at the various shops, and I’ll be covering that in a separate article.
Second, for that consignee, Intuit’s method doesn’t allow you to track how many items on consignment you are holding on behalf of the consignor. And that’s what I want to tackle here.
Setup for tracking inventory the consignee is holding
To set this up, we need to make sure that the appropriate lists are populated: the Product Categories, the Chart of Accounts, and the Products and Services list.
Product Categories:
I’ve created a Product Category called “Stuff We are Holding on Consignment” and a sub Category for each store whose items we’re trying to sell. In our example, there are two stores whose goods we are carrying and hoping to sell on their behalf:
Chart of Accounts:
No. 1 — I have created an Inventory account for each store whose consignment goods we are carrying (separate from our actual Inventory Asset account), even though the dollar balance in these accounts will always be zero.
No. 2 — I also have created a Consignment Sales income account with the Detail Type Sales of Product Income:
Products and Services:
I’ve created an Inventory item for each product we are selling on behalf of the other stores.
Each product is:
- Associated with the sub-category for the store that sent us the products to sell
- Assigned the Inventory asset account for that particular store that I set up earlier
- Assigned a selling price (the price at which we will be selling it) but a zero purchase cost (nevertheless, I have chosen Cost of Goods Sold as the expense account for purchase)
- Assigned to the Consignment Sales, the income account I set up earlier
Recording receiving the goods to sell
Because the goods come in for sale at zero cost, some might create a $0 Expense or Check transaction, indicating how many of each type of product, at $0 unit cost, came in. And I suppose that’s okay as far as accounting for them is concerned.
But in the spirit of the fact that we do not actually own these goods, I prefer to record the goods coming in as an inventory adjustment:
Because the value of the transaction is $0, the choice of Inventory adjustment account is irrelevant—it is affected by $0 for each of these adjustments.
The transaction journal, customized to add a Qty column, shows the quantities of the consignment goods that have come in:
Reporting on inventory held for consignment
I have set things up this way because the Inventory Valuation Summary can be filtered only by Product/Service Item, not by account or class. And in the Product/Service filter drop-down, we can specify the product category, including the parent product category that includes subcategories for all the consignors.
And lastly, I changed the title of the report to indicate that it was just inventory held on consignment, and I saved the customization:
Sales transactions during the month
As the month goes on, sell these products on sales receipts and invoices, just as you would sell any products.
Reporting on consignment product sales for the month
The Sales by Product/Service Summary report (unlike the Inventory Valuation Summary) can be filtered by a number of parameters, but I’m filtering it for the same product category I used on the Inventory Valuation Summary report:
Photo
With that filter in place, and after changing the title, I saved this customization as well:
And now, after sending these reports to the stores that sent us the inventory products, they can invoice us for their commission (either as a flat rate per unit or a percentage of the sales value).
Or, we can be proactive and immediately enter the “bill” from each store, dated the last day of the month, for their commission (using whatever expense or contra-income account you deem appropriate)—and pay it.
After the month’s sales, we can run that customized Inventory Held on Consignment report again:
That’s it for tracking things from the consignee’s point of view.
Next up: tracking inventory from the consignor’s perspective.
Esther Friedberg Karp is an internationally-renowned trainer, writer and speaker from Toronto, where she runs her QuickBooks consulting practice, EFK CompuBooks Inc. Consistently in Insightful Accountant's Top 100 ProAdvisors, she has been named to the Top 10 twice.
With the unique distinction of holding ProAdvisor certifications in the US, Canadian, UK, and International versions of QuickBooks, she has traveled the world with Intuit. She has spoken at conferences such as QuickBooks Connect, Scaling New Heights, and Future Forward, and has written countless articles for Intuit Global.
Esther has been named one of the “Top 50 Women in Accounting,” a “Top 10 Influencer” in the Canadian Bookkeeping World, and is a repeat nominee for the “RBC Canadian Women’s Entrepreneur Awards.” She counts among her clients many international companies, as well as accounting professionals seeking her out on behalf of their own clients for her expertise in multi-currency and various countries’ editions of QuickBooks Desktop and Online.
She can be reached at esther@e-compubooks.com or 416-410-0750.
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