Consignment Inventory — FMCG Goods Placed at Distributor (No Revenue Until Sold Through)
Recording inventory shipped to a distributor on consignment — where title and risk remain with the manufacturer until the distributor sells to end customers, and revenue is recognized only at sell-through.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Consignment Inventory — At Distributor (Transferred from Finished Goods) | Asset (+) | 8,500,000.00 | - |
| Finished Goods Inventory (Transferred to Consignment) | Asset (-) | - | 8,500,000.00 |
💡 Accountant's Note
Consignment arrangements are common in FMCG markets where: (1) the product is new and the distributor doesn't want to bear inventory risk, (2) the market is too small for the distributor to commit upfront, or (3) it's a test market situation. Under ASC 606-10-55-79, consignment is NOT a revenue recognition event — control has not transferred to the distributor (the manufacturer bears all inventory risk; the distributor is merely a warehouse and logistics agent). Revenue is recognized ONLY when the distributor sells the goods to end retailers or consumers (the 'sell-through' event). The consignment inventory remains on the MANUFACTURER'S balance sheet, not the distributor's — the distributor has no inventory asset or corresponding payable.
Practitioner & Systems Framework
💻 ERP Architecture
Consignment inventory requires careful tracking: the manufacturer maintains a consignment inventory sub-ledger by distributor location showing: goods shipped to consignment, goods sold through (revenue recognition), goods returned (back to manufacturer), and remaining consignment balance. The ERP must be configured to NOT automatically recognize revenue upon shipping to the consignment location — a separate sell-through trigger is required. Monthly reconciliation of consignment balances with distributor reports is essential.
⚠️ Audit Flags
Auditors test consignment inventory for: (1) proper exclusion from revenue until sell-through, (2) physical existence at the distributor (confirmations from distributors, or inspection at high-value locations), (3) completeness of the consignment sub-ledger, and (4) NRV assessment — consigned goods at slow-moving distributors may need write-down. The risk: some companies incorrectly recognize revenue when goods are shipped to consignment, treating it as a sale to the distributor.
📄 Required Documentation
Consignment agreements (title retention, sell-through reporting requirements, return rights), consignment inventory sub-ledger by distributor, distributor sell-through reports (received monthly), consignment balance confirmation from each distributor, NRV assessment of aged consignment inventory, and sell-through revenue recognition schedule.
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