CONSIGNMENT

Summary

Consignment is a business arrangement where a product owner (consignor) gives their goods to another party (consignee) to sell on their behalf. The key feature is that ownership of the goods remains with the original owner until the items are actually sold to customers. The seller only pays the owner after making a sale, usually keeping a percentage as commission. This reduces risk for the seller since they don't have to purchase inventory upfront, while allowing the owner to reach more customers without handling sales directly.

Usage Context

Understanding consignment is important when studying inventory management, revenue recognition principles, business relationships, and sales channel strategies. It's particularly relevant in accounting courses for proper financial statement treatment.

Common Confusions

• Thinking the consignee owns the goods immediately upon delivery
• Confusing consignment with regular purchase/sale transactions
• Misunderstanding when revenue should be recognized
• Not knowing who bears the risk of unsold inventory
• Confusing consignment with drop shipping arrangements