Multiple Choice
Which of the following statements correctly describes the primary purpose of taking a physical inventory count?
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5. Inventory
Physical Inventory Count, Ownership of Goods, and Consigned Goods
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Which of the following is most true regarding consignment arrangements?
A
Ownership of consigned goods transfers to the consignee upon delivery.
B
Goods held on consignment remain the property of the consignor until sold.
C
Goods held on consignment are recorded as inventory by the consignee.
D
The consignee recognizes revenue when the goods are received.
Verified step by step guidance1
Understand the concept of consignment arrangements: In a consignment arrangement, the consignor (owner of the goods) sends goods to the consignee (agent or seller) to sell on their behalf. Ownership of the goods remains with the consignor until the goods are sold.
Clarify the ownership aspect: Goods held on consignment are not transferred to the consignee upon delivery. The consignee acts as an agent and does not own the goods; they are responsible for selling the goods on behalf of the consignor.
Examine inventory recording: Since the consignee does not own the goods, they do not record the consigned goods as inventory in their accounting records. The consignor continues to record the goods as inventory until they are sold.
Revenue recognition by the consignee: The consignee does not recognize revenue when the goods are received. Revenue is recognized only when the goods are sold to a third party, as the consignee earns a commission or fee for facilitating the sale.
Conclude the correct statement: Based on the principles of consignment arrangements, the correct statement is that goods held on consignment remain the property of the consignor until sold.
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Physical Inventory Count, Ownership of Goods, and Consigned Goods practice set
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