The term consigned goods refers to a marketing arrangement whereby one party provides merchandise to a second party, who is responsible for selling the merchandise. The seller of the merchandise is paid a commission, and may be reimbursed for selling expenses, in exchange for providing this service.
Also known as sales on consignment, a consigned goods agreement consists of two parties working together to sell merchandise:
This type of arrangement provides the consigner with a channel to market and sell their merchandise, while the consignee is able to carry an inventory of merchandise without purchasing it from the manufacturer. The consignee agrees to accept these goods without any liability, but promises to provide reasonable care and protection of the goods until sold.
Since the merchandise remains the legal property of the consigner until sold, the consigner must include the cost of this merchandise when calculating the value of its inventory. In the same way, the consignee must take care to exclude the consignment merchandise when valuing its inventory.