When I last wrote about consignment inventory tracking, I did so in an article from the point of view of the consignee.
Now, as promised, it is time to look at tracking consignment inventory from the other side: the consignor’s perspective.
If you search for an Intuit knowledge-based article on consignment tracking, you will see this article, which is strictly from the point of view of the consignee (and I don’t love the approach anyway) and it ignores the consignor completely.
So here’s my MacGyver-esque take on consignment tracking for the consignor.
Our scenario as a consignor
Let’s take the following example:
Our company, Rock Castle Construction (RCC), has decided to diversify into selling widgets. In addition to selling widgets and other inventory items at our own storefront, RCC has now begun to sell some of its widgets at two nearby consignment shops, Esther’s Exquisites and MB’s Magnificents.
Setup for tracking the consignor’s inventory that the consignee is holding
Chart of Accounts:
In order to segregate the widgets that are being sold at the consignment shops, I have created an additional inventory account for each consignee’s store, clearly labeled as consignment as our inventory held elsewhere:
Products and Services:
I have created a separate inventory item for each different type of widget that is sold at each consignment store.
In this example, there are two different varieties of widgets in inventory, the Widget1 and the Widget2. Both are sold at the outside consignment shops. So I’ve segregated the widget varieties into those that are sold at Esther’s and those that are sold at MBs:
Each item is linked to the appropriately-named Inventory asset account:
And, as you can see in the products and services list as well as in the Product/Service information, I have created product categories for each store and made them sub-categories of a parent category called “Consignment Stores Selling our Stuff.”
And, since we also have these widgets in RCC’s Main Warehouse (and sell them at our own storefront), I also have created similarly-named products in the Main Warehouse product category. They are linked to the inventory asset account called “Inventory Asset—Our Inventory.”
All the Widget1s have the same default cost, regardless of which product category they are in, and similarly all the Widget2s have the same default unit cost as the other Widget2s. They all have different selling prices (as the consignees are getting these widgets at a discount from the regular retail price—and I will discount them further as you will see below), but their default unit costs are the same for all widgets of the same variety.
Recording sending the goods to the consignment shops
Because the goods were not actually sold to the consignees, I have recorded the transfer of these widgets as an Inventory Quantity Adjustment. The widgets are coming out of the Main Warehouse (therefore, the negative change in quantity) and going to each consignment store (therefore, a positive change in quantity).
As the net change in quantity of each of these widgets varieties is zero (and the default purchase costs of all widgets of the same variety are the same), the value of the Inventory Quantity Adjustment is zero and the choice of Inventory adjustment account (Inventory Shrinkage in the screenshot below) is irrelevant.
Recording when the consignment goods are sold on the consignee’s end
Each consignment shop reports the monthly sales to RCC. Here, MB’s Magnificents reports that it has sold 20 Widget1’s and 275 Widget2’s during the month of July and sends the funds to RCC. Let’s assume there is no sales tax.
As in the case of any customer that buys goods and pays on the spot, on RCC's end, it is recorded as a Sales Receipt and the money goes into Undeposited Funds, which later gets deposited into Rock Castle’s bank account:
You may notice on the Sales Receipt that the selling price of these Widgets is lower than what was listed in the Products and service list. That’s because I went an optional step further and added Price rules to selected widgets if further discounting was necessary.
That’s a nice bonus: because there are several Widget1s and Widget2s, depending on who is warehousing them, I can specify a Price rule for only some of a particular variety of widget.
Reporting on our inventory held at the consignment shops
Of course, I can look at a Balance Sheet to see the value of inventory held at consignment shops at any given time:
But if I want to see the breakdown of these inventory amounts, I can run an Inventory Valuation Summary report, filtered for the Product/Service parent category of “Consignment Stores Selling our Stuff.”
I can re-title and save the customization of this report, to make it easy to run it in the future.
Then, I can see the asset value held at each consignment shop (which matches the Balance Sheet), but I can also see the quantity and value of each item held there.
Consignment sales at consignees during the month
And, if I want to see what the sales of widgets have been at each consignment shop, I can run a Sales by Product/Service Summary report filtered for that same Product/Service parent category of “Consignment Stores Selling our Stuff.”
Again, I can re-title the report and save the customization to make it easy to run in the future:
So now we have covered tracking consignment inventory and sales from the consignor’s point of view.
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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