Handling Consignment Goods with QuickBooks -

There are two sides of tracking consignment goods: From the perspective of the Consignor, the person who is placing goods into someone else’s possession for them to sell, and from the perspective of the Consignee, the person who is selling goods that belong to someone else. In this article we’ll talk about how to use QuickBooks if you are the Consignee.

As the consignee you have goods that you are selling on the behalf of someone else. For this discussion, let’s assume that you get to keep 25% of the sales revenue on consignment items as commission.

To start, we’ll create two accounts in the Chart of Accounts. Create an Other Current Liability account called “Consignment sales – liability.”

Create an Income account called “Commission Income.”

Next, we’ll create several items in the item list. Create a new one-sided Service item, “Reduce Liability for Commission” and link it to the “Consignment sales – liability” account. The rate is a percentage, not in dollars and cents. Give it a rate of -25% (negative 25%), which is the commission rate for our example.

Create a second one-sided Service item, “Commission Income” and link it to the “Commission Income” account. Its rate is also not in dollars and cents. It is 25% (i.e. positive 25%).

Create an Inventory Part item called “Held on Consignment” linked to your regular Cost of Goods Sold and Inventory accounts, as well as using the new “Consignment sales – liability” account for the Income account.

You will create a subitem of the “Held on Consignment” item for all items that you bring in from vendors for you to sell on their behalf. Each of these items is linked to the same accounts as the main consignment item.

Now create a Group item for each Consignment item that you might sell on the consignor’s behalf.

You will create a Vendor record for each consignor that you are selling items for. The consignor sells these items to you for $0 each so that you can enter the total on a bill for $0 as shown below. That way you know exactly how many of the consignor’s goods you have on consignment.

When you sell the consignor’s goods, enter the invoice as usual but use the group items created for each consignment item. Remember, the items in the group will not appear on the printed invoice. That way, the commission is calculated behind the scenes.

The customer sees this invoice without the group’s individual lines appearing:

Here are the debits and credits behind the scenes for this invoice:

Therefore, upon selling the group item, the quantity on hand of the consignment item goes down, and the income goes into the Consignment sales liability account. The Consignment sales liability account is reduced by the 25% commission you earned, and that goes into the Commission income account.

This method updates the liability to the consignor vendor upon each and every sale of a consignment item. It also updates the commission income earned immediately. The amount showing as the Commission sales liability ($100 sales less the $25 commission) shows accurately on the Balance Sheet:

Now you will write a check to the consignor for the net amount of the sales after deducting the commission you’ve earned:

And the amount of commission earned shows accurately on the Profit & Loss:

The Sales by Item Summary report will be correct, and you can filter it for consignment items only, remove COGS columns and memorize it:

The Inventory Stock Status by Item report will also be correct.

This is an excerpt from The Sleeter Group’s QuickBooks Consultant’s Reference Guide.

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