Multiple Choice
Goods on consignment are:
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5. Inventory
Physical Inventory Count, Ownership of Goods, and Consigned Goods
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Goods held on consignment are:
A
not included in the consignee's inventory
B
included in the consignee's inventory
C
owned by the consignee
D
recorded as a liability by the consignor
Verified step by step guidance1
Understand the concept of consignment: Consignment refers to an arrangement where goods are sent by the consignor (owner of the goods) to the consignee (seller) for sale. The ownership of the goods remains with the consignor until they are sold.
Analyze the inventory treatment: Since the consignee does not own the goods, they should not include the consigned goods in their inventory. Inventory represents items owned by the entity, and consigned goods are owned by the consignor.
Consider the accounting implications for the consignor: The consignor retains ownership of the goods and records them as inventory on their books until they are sold. The consignor does not record the goods as a liability because they are assets owned by the consignor.
Evaluate the consignee's role: The consignee acts as an agent to sell the goods on behalf of the consignor. They do not record the goods as inventory or liability but may record a commission or revenue once the goods are sold.
Conclude the correct treatment: Goods held on consignment are not included in the consignee's inventory because the consignee does not own them. Ownership remains with the consignor until the goods are sold.
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