What it means
Consignment involves two sets of books, because the goods belong to one party but sit with the other. Each side keeps its own records, and without checking they can easily drift apart.
The reconciliation has two parts. The quantity reconciliation compares units shipped, sold, returned and counted, and the money reconciliation compares sales, commission and deductions with the amount remitted.
On the quantity side, the formula is straightforward. Opening stock plus goods sent, less goods sold and goods returned, should equal the physical count at the consignee's location.
On the money side, the consignor checks that the sales figure reported matches the number of units sold at the agreed prices, that the commission is calculated correctly, and that any charges deducted were authorised in the contract. Any difference between the remittance expected and the amount received needs to be explained.
Timing differences are common. Goods in transit, sales made on the last day of the month and returns not yet processed all cause temporary gaps, and a good reconciliation lists them separately so the real differences stand out.
Unexplained differences should be investigated quickly. They could indicate theft, damage, misrecorded prices or sales that were not reported, and the contract should provide a process for settling them.
In practice
Real-world examples.
Example
A publisher sends 500 books to a chain of bookshops each quarter. At quarter end the finance team compares its shipment log with each shop's sales report and stock count, and chases the two shops where the numbers differ. The differences are usually small and explained by timing.
Example
A wine importer leaves cases at a restaurant on consignment. The importer's rep counts bottles monthly and agrees the used bottles with the restaurant's invoice before issuing a bill. Any discrepancy is raised the same day while memories are fresh.
Example
A jewellery maker consigns pieces worth $30,000 to three boutiques. A reconciliation reveals that one boutique has sold a $900 ring without reporting it, and the maker collects the money. She then asks all three boutiques to sign off their stock counts at the end of each month.
Formula
Calculation
Expected units at consignee = Opening units + Units sent - Units sold - Units returned
Expected remittance = Sales - Commission - Authorised charges
A consignee held 120 units at the start of the month, received 300, sold 260 and returned 20. Expected units on hand = 120 + 300 - 260 - 20 = 140. The physical count is 138, so 2 units are missing, and at a cost of $40 each the shortage is worth $80. Sales were 260 x $25 = $6,500, commission at 12% is $780 and an authorised marketing charge is $120, so expected remittance = $6,500 - $780 - $120 = $5,600, which matches the payment received.Case study
Seen in the real world.
Hollis Outdoor Gear is an illustrative, fictional manufacturer of camping equipment that placed stock with eight independent shops. The owner relied on each shop's emailed sales report and paid little attention to the physical stock.
When a new bookkeeper began reconciling, she found that one shop had reported selling 40 tents while the sales invoices implied 55 units had left the shelves. The missing 15 tents represented about $3,000 of unreported sales at the agreed price.
The shop's manager explained that a staff member had been recording some sales on the wrong product code. In this illustrative case the shop corrected the error, paid the difference and agreed to a quarterly physical count, and the maker introduced a standard reconciliation sheet for all eight shops. She also kept a signed copy of each count in a shared folder, so that any later dispute could be settled from the record rather than from memory.
Watch out
Common mistakes.
- Trusting the consignee's report without ever counting the stock.
- Reconciling only the money and ignoring the units, which hides stock losses.
- Letting differences accumulate for months, when old differences are far harder to explain.
Questions
People also ask.
How often should consignment stock be reconciled?
Monthly is common for fast-moving goods, and at least quarterly for slower stock, and always at the financial year end. The year end count supports the inventory figure in the accounts.
Who should do the reconciliation?
Ideally someone independent of the people who ship goods and record sales, so that errors or fraud are less likely to go unnoticed. Where the business is small, the owner can review the reconciliation personally. A short written note of the outcome, even when everything agrees, is good practice.
What if the numbers do not agree?
List the timing differences first, then investigate the remainder, agree an adjustment with the consignee and record it in the books. Keep the supporting documents with the reconciliation. A signed copy should go to the consignee so both sides hold the same record.
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