Consignment: selling goods that are not yours
Goods sit on your shelf but belong to someone else until they sell. Here is who records what, and when.
A supplier leaves stock with you and you pay only for what sells. A crafter puts their products in your shop and takes a share. A store takes your goods and returns whatever is left.
Consignment is common, flexible, and one of the easiest arrangements to record incorrectly, because the ordinary rule of thumb, that stock on your shelf is yours, does not apply.
Ownership does not move when the goods do
In a normal purchase, the seller sells, the buyer buys, and the goods change hands and owners together.
In consignment, the goods move but ownership does not. The owner, the consignor, keeps ownership while the goods sit with the seller, the consignee. Only when the item is sold to a customer does ownership pass, usually straight from the consignor to the customer.
That single fact drives everything else, and it explains the two most common errors: the shop recording consigned stock as its own inventory, and the owner treating the delivery to the shop as a sale.
Who records a sale, and when
The sale happens when the customer buys, not when the goods are delivered to the shop.
At that point there are usually two things to record, not one. The consignor has sold their goods. The consignee has earned their commission or margin for making the sale happen. Those are two different economic events, and each side has its own records to keep.
How the paperwork runs depends on how the arrangement is structured. In some setups the shop sells in its own name and settles with the owner afterwards. In others the shop acts openly as an agent. These are not the same, and the documents each party issues follow the structure.
This is exactly the sort of arrangement where getting the structure clear at the start prevents a mess later, because both sides' records need to tell the same story.
Why sloppy consignment records cause real problems
Inventory that does not match. A shop counting consigned goods as its own has stock in its books it does not own, which distorts everything from insurance to the value of the business.
Unrecorded sales. Money from consigned sales flowing through the till without being properly separated makes the shop's income look wrong in one direction or the other.
Missing settlements. The reconciliation between what sold, what is owed to the owner, and what the shop keeps is where the arrangement lives. Without a regular settlement statement, disputes are guaranteed.
Goods nobody counted. Unsold items returned months later, damaged stock, and shrinkage all need an agreed treatment or someone absorbs a loss they did not agree to.
Making it clean
Put the arrangement in writing: whose goods, what share, who bears the loss for damage or theft, how often you settle, and how returns are handled.
Keep consigned stock physically and in the records separate from owned stock. A separate list, a separate section on the shelf, a separate line in the books.
Settle on a fixed schedule, with a statement showing what sold, at what price, and what is due. This document is the backbone of the whole arrangement.
Agree who issues what to the customer at the point of sale, and be consistent about it.
Selling on consignment, or placing your goods with someone who does, and unsure how to record it? Ask AskOnward for a plain answer from the official BIR rules, so both sides' books tell the same story.
This article is for general information and is not affiliated with the government. For official forms and the latest rules, see the Bureau of Internal Revenue at bir.gov.ph.