Consignment
Consignment is a process whereby a person gives permission to another party to take care of their property and retains full ownership of the property until the item is sold to the final buyer.[1] It is generally done during auctions, shipping, goods transfer, or putting something up for sale in a consignment store.[2] The owner of the goods pays the third-party a portion of the sale for facilitating the sale. Consignors maintain the rights to their property until the item is sold or abandoned. Many consignment shops and online consignment platforms have a set time limit (usually 60–90 days) at which an item's availability for sale expires. Within the time of contract, reductions of the price are common to promote the sale of the item, but vary by the type of item sold (depending largely on the price point, or whether or not the item can be considered a luxury item).
Consignment stock is stock legally owned by one party but held by another, meaning that the risk and rewards regarding the said stock remain with the first party while the second party is responsible for distribution or retail operations.[3][4]
The verb consign means "to send", and therefore the noun consignment means "sending goods to another person". In the case of retail consignment or sales consignment (often just referred to as a "consignment"), goods are sent to an agent for the purpose of sale. Legal ownership of these goods remains with the sender. The agent sells the goods on behalf of the sender according to instructions. The sender of goods is known as the consignor, and the agent entrusted with the custody and care of the goods is known as the consignee.
A consignor who consigns goods to a consignee transfers only possession, not ownership, of the goods to the consignee. The consignor retains title to the goods. The consignee takes possession of the goods subject to a trust. If the consignee converts the goods to a use not contemplated in the consignment agreement, such as by selling them and keeping the proceeds of the sale for the consignee, the crime of conversion has been committed.
The word consignment comes from the French consigner, meaning "to hand over or transmit", originally from the Latin consignor "to affix a seal", as it was done with official documents just before being sent.
When a vendor (consignor) provides goods on consignment to a distributor (consignee) then revenue cannot be recognized when control has transferred. This could occur at the expiration of a specified consignment period, or the sale of an item to an end-consumer. The SEC has provided examples of consignment arrangements in question 2 of SAB Topic 13.A.2 including the following:[7]
Accounting Standards Codification (ASC) 606-10-55-80 (implemented for public companies December 15, 2017) provides three indicators of the presence of consignment arrangement that provides the principles behind the examples that the SEC has outlined. These indicators are as follows:[8]
This list of indicators of a consignment arrangement is not all-inclusive, so companies should also consider other indicators of the transfer of control found in ASC 606-10-25-30.[9]