What is Consignment Accounting?
Consignment accounting refers to the recording of transactions in which one party (the consignor) sends goods to another (the consignee) to be sold on the consignor’s behalf. Ownership remains with the consignor until the goods are sold to the final customer.
How It Works
- The consignor keeps the consigned goods in its inventory at cost.
- The consignee maintains a memo record of consigned goods without booking them as inventory.
- When goods are sold by the consignee, the consignor recognises revenue, the consignee recognises commission income.
- Reimburse direct expenses paid by the consignee from the proceeds.
- Reconcile consignment balances regularly and confirm physical counts at the consignee location.
Saudi Context
Consignment is common in Saudi automotive parts, fashion, and pharmaceuticals. Under SOCPA-adopted IFRS 15, the consignor recognises revenue only when the consignee sells to the end customer, not on transfer to the consignee. ZATCA expects the same treatment for VAT.
Example
Consignor sends SAR 200,000 of inventory to a consignee. The consignee sells SAR 120,000 to end customers at a 15% commission. Consignor revenue = SAR 120,000, commission expense = SAR 18,000, cash from consignee = SAR 102,000.