How do I account for consignment inventory when I don't own the product I'm selling?
The basic rule is straightforward. If you don’t own it, it doesn’t belong on your balance sheet as inventory. When a consignor drops off products for you to sell, you haven’t purchased anything. No asset gets recorded and no expense hits your books. The consignor retains ownership until a customer actually buys the item.
When a consignment item sells, your revenue is only the commission or percentage you keep. Say a customer buys a handbag for $200 and your consignment agreement gives you 35%. Your revenue is $70. The remaining $130 is a liability you owe the consignor. You would credit a liability account like “Due to Consignors” for $130 and credit income for $70. When you eventually pay the consignor, you reduce that liability.
One of the most common mistakes is recording the full selling price as revenue and then recording the consignor’s share as a cost of goods sold. That inflates both your sales numbers and your expenses. Your financial statements end up misrepresenting the size of your business, which causes problems with lenders, investors, and tax planning. A shop that facilitates $300,000 in consignment sales but earns $105,000 in commissions is a very different business than one generating $300,000 in product revenue.
You still need to track what’s physically in your store even though consignment goods aren’t on your books as inventory. Most businesses maintain a separate tracking system, whether that’s a spreadsheet or a consignment-specific app, to record what each consignor delivered, what sold, and what’s still on the floor. This tracking is essential for paying consignors accurately and knowing what to return if items don’t sell. Proper inventory accounting requires keeping consigned and owned items clearly separated in your records.
In QuickBooks, create a liability account specifically for consignment payables. You can break this down by consignor using sub-accounts if you work with many of them. When you receive payment from a customer for a consigned item, split the deposit between your income account and the consignment liability. When you cut a check to the consignor, apply it against that liability. This keeps everything clean and auditable.
Make sure your consignment agreements spell out the revenue split, payment timing, responsibility for damaged or stolen goods, and what happens with unsold items. These details directly affect your accounting. If you’re responsible for theft or breakage, you may need to carry that risk on your books. If the consignor absorbs shrinkage, your liability only applies to items actually sold.
If you’re running a retail shop or boutique in Central Florida and juggling owned inventory alongside consignment goods, the bookkeeping gets layered fast. Our bilingual bookkeeping services can help you set up systems that keep both types of inventory properly tracked so your financial statements reflect reality and your consignors get paid correctly every time.
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