Bookkeeping Entries for Consignment Accounting

by L. Kenway BComm CPB Retired

In Canada, CRA accepts two methods of consignment accounting. They are sale by agent arrangements and purchase and resale arrangements.

Purchase and resale arrangements require both the consignor and the consignee to charge and account for the GST/HST while sale by agent arrangements requires only the consignor to charge and account for GST/HST.

So warm up your tea … and let's figure out how we would do consignment accounting if we are the consignee ... that is we are the store receiving the goods to sell.

Scenario One - Consignment Store Using Purchase and Resale Arrangements

As I use QuickBooks software, I will use QuickBooks examples to illustrate my points.

If at any time you don't get what I'm saying, key in "consignment" into the QuickBooks help menu to find more details on how to set everything up. I'm sure the Simply Accounting help menu would be similar.

Consignment Accounting
Setting Up Your Books to Handle Consignment Sales

1. Create a vendor name in QuickBooks for every consignor you receive goods from.
2. Create an income account called Consignment Sales to track your sales.
• Technically, the sale does not "belong to you" but as a store owner, I want to be able to use QuickBooks to report and analyze my consignment sales so I'm choosing to not run the sales through the consignors' accounts.
3. Create an other asset account called Consignment Goods to receive your consignment inventory.
4. Set up consignment items for each product or group of products you receive on consignment as follows:
• Open the item list and add a non-inventory part item named "Consigned Item".
• Click on "This item is purchased or and sold to a specific customer."
• Enter the cost and sale price as $0.
• Code the expense account to your other asset account called Consignment Goods; code your income to Consignment Sales.
• Leave the preferred vendor field blank and select the sales tax code applicable to your situation.
• Create a custom field for items Consignor and leave it blank.
5. Create a custom Sales Receipt template for consignment sales
• Select "Templates" from the List menu.
• At the bottom you will see a Template button. Click on it and select "new".
• Next select "Sales Receipt" and click ok.
• Name it "Consignment Sale".
• Make your way to the Columns tab and in the "screen column" click on the Consignor line at the very bottom (we created this earlier) so you will know whose product you sold.
• Change anything else you want on the form then save it.

Consignment Accounting
Receiving Consignment Items to Sell

1. Create a Purchase Order for the item you are receiving on consignment. Enter the cost as zero. (Why zero? Because you don't own the item(s).)
2. Click on "Receive Items" from the Vendors menu.
3. Receive the item from the consignor, again with a zero cost.
4. Make a memo note of the name and sale price, also a label to attach to the product with the consignor name and agreed sale price so you know which vendor to pay when the item is sold.

I have chosen a method of consignment accounting tracking for consignment stores that have high volume. QuickBooks does not make an inventory entry here as we are not using inventory and the dollar value recorded was zero. Your Purchase Orders let you know what you have received.

If you have a low volume of consignment items / sales, you could choose to track the actual inventory in QuickBooks. See the QuickBooks help menu for details on how to do this.

Consignment Accounting
Recording a Consignment Sale

1. Select "Enter Sales Receipts" from the Customer menu.
2. Select your custom made template for consignment sales. (far upper right hand side of the form)
3. Fill in the sales receipt. enter the sales price from the sales tag and the consignor's name. Save it.
   

The bookkeeping entry for recording a consignment sale made by QuickBooks, assuming the consignee is a GST/HST registrant, would be:

Dr Undeposited Funds (waiting to be deposited to the bank)
Cr Consignment Sales
Cr GST/HST Payable

Consignment Accounting
Paying Your Consignor After a Sale

1. From your Vendors menu, select "Enter Bill for Received Items".
2. Enter your consignor's name.
3. Select the item relating to the sale and click on OK. This turns your Item Receipt into a Bill which will now show up under Pay Bills.
4. Enter the amount you agreed to pay the consignor in the cost field. Click recalculate to have the taxes included in the total amount due. Select the due date in accordance with your agreement. Don't "save and close" yet. This entry added the item to inventory ... see step 1 under bookkeeping entries below. That is not what we want, so the next two steps will fix that.
5. Click on the Expense tab. We are now going to remove the item from inventory. On the first line under account, choose your inventory account "Consignment Goods". Enter the amount you are paying the consignor as a negative number and make sure you have the proper sales tax code selected. In the memo field you could enter "adjust inventory for sale of consigned item".
6. On the next line, choose "Consigner Goods Sold" for your account. Enter a positive dollar value here. If you have done this correctly, your Expense tab total should be zero and your Items tab should equal the amount you are paying the consignor before tax. Look at step 2 under bookkeeping entries below to see what the entries on the Expense tab are doing.
7. Now you can "save and close" the bill.
8. Your last step will be to pay the consignor on or before the due date using Pay Bills. Look at step 3 under bookkeeping entries below to see what happens when you actually pay your consignor.

The bookkeeping entries that would be made by QuickBooks for paying your consignor after a sale are:

(1) To record the amount due to the consignor

Dr Consignment Goods (your inventory account)
Dr GST/HST Payable (only if the consignor is a GST/HST registrant)
Cr Accounts Payable - Individual Consignor

(2) To adjust inventory after a consignment sale

Dr Consignment Goods Sold
Cr Consignment Goods

(3) To the amount due to the consignor

Dr Cash in Bank
Cr Accounts Payable - Individual Consignor


I'm writing this article because of a great question I got on Consignment Accounting for a Store. I will continue this article on consignment accounting soon. My intention is to look at three additional scenarios:

1. running a consignment store as an agent;
   
2. consigning your goods to a consignment store under a purchase and resale agreement;
   
3. consigning your goods to a consignment store under an agent agreement.
   
   

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