Definition
A consignor is any person or organization that sends goods to a consignee. A consignor can also be defined as a principal who sells goods on consignment through an agent (consignee), often in a foreign country. In a consignment arrangement, the consignor retains ownership of the goods until they are sold by the consignee.
Examples
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Producer exporting goods: A manufacturer of organic food products in Germany consigns a shipment of various organic jams to a grocery store chain in the United States. The German producer is the consignor, and the grocery store chain is the consignee. The grocery store will pay the producer upon the sale of the jams to end customers.
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Artwork on consignment: An artist consigns their paintings to an art gallery. The artist, as the consignor, maintains ownership until the paintings are sold by the gallery, which acts as the consignee.
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Fashion retailer and designer: A fashion designer sends a line of clothing to a boutique retailer. The designer is the consignor who retains ownership until the products are sold by the retailer, who is the consignee.
Frequently Asked Questions
Q: What is the difference between a consignor and a consignee? A: The consignor is the party that sends goods on consignment, retaining ownership until the goods are sold. The consignee is the party that receives and sells the goods on behalf of the consignor.
Q: When does a consignor recognize revenue? A: A consignor recognizes revenue when the consignee sells the consigned goods to a third party since ownership and risk remain with the consignor until the sale occurs.
Q: How is consignment inventory accounted for? A: Consignment inventory remains recorded as inventory on the consignor’s balance sheet until the consignee sells the goods. The consignee keeps a separate account for consignment inventory, representing goods held on behalf of the consignor.
Q: What responsibilities does the consignee have regarding consigned goods? A: The consignee is responsible for selling the goods, providing periodic inventory reports, and returning unsold inventory to the consignor or negotiating terms for its disposal.
Q: Can consignors set the sale price for consigned goods? A: Yes, consignors typically set the minimum sale price or terms under which the consignee can sell the goods. Consignors may also provide incentives for the consignee to sell at higher prices.
Related Terms
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Consignee: The recipient party in a consignment deal who sells the goods on behalf of the consignor.
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Consignment: The act of sending goods to a third party (consignee) for sale, with the ownership maintained by the consignor until the goods are sold.
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Inventory Turnover: Measures how quickly a company sells through its inventory over a specific period.
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Revenue Recognition: The accounting principle that determines the specific conditions under which income becomes recognized as revenue.
Online References
- Investopedia on Consignor
- The Balance: Consignment Agreements
- Accounting Tools: Consignment Accounting
Suggested Books for Further Studies
- “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
- “Financial Accounting: An Introduction” by Pauline Weetman
- “Cost Management: A Strategic Emphasis” by Edward Blocher, David E. Stout, and Paul E. Juras
- “International Logistics: The Management of International Trade Operations” by Pierre A. David
Accounting Basics: Consignor Fundamentals Quiz
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