Question

What is the nature of a sale on consignment?

Short answer

When things are shipped on consignment from a manufacturer (or wholesaler) to a dealer (or retailer), the manufacturer retains title to the goods and bears the risk of sale.

Step-by-step solution

Meaning of Sale on Consignment

Selling items at consignment refers to a circumstance in which goods are received by the retailer, who only pays the seller of the goods. Any object that has not been sold has the right to be returned to the seller by the dealer, also called the consignee.

Nature of a sale on consignment           

The shipping of items from a manufacturer (or wholesaler) to a dealer (or retailer) on consignment means that the manufacturer retains title to the goods and assumes the risk of sale. The consignee (dealer) is supposed to take reasonable care of the product, and the dealer has complete authority to return it. The consignee is paid a commission on the sale and returns the remaining funds to the consignor.

When the consignee notifies the consignor of the sale and cash is received, the consignor acknowledges the sale and associated income. Until sold, the committed products are kept in the consignor's inventory, not the consignees.