Consignment inventory is stock that physically sits in a buyer's store, stockroom, or warehouse while the supplier — not the buyer — retains legal ownership until the goods are sold or used. The buyer only owes payment for what moves, and unsold goods can typically be returned without a purchase obligation. A closed-loop procurement system — one where forecasting, ordering, supplier replies, receiving, inventory, and cash projections all update from the same connected record — has to treat consigned units as a distinct ownership state at every one of those steps, because the answer to "what do we actually own right now?" changes the math for buying budgets, cash forecasts, and what the buyer owes the supplier.
In plain English: consignment inventory is stock you display and sell before you pay for it — and "before you pay for it" is exactly where the bookkeeping gets hard.
Quick answers
What is consignment inventory? Consignment inventory is product a supplier (the consignor) places at a buyer's location (the consignee) while retaining ownership. The buyer pays only for units sold or used, on a schedule set by the consignment agreement — weekly, monthly, or at a defined settlement date. Unsold units can usually be returned to the supplier without a purchase obligation.
Who owns consignment inventory — the buyer or the supplier? The supplier owns it until a sale to the end customer (or, in a manufacturing context, consumption in production) transfers ownership. This matters for the buyer's books: consigned goods are not the buyer's inventory asset and don't create a payable until they're sold or used.
How is consignment inventory accounted for? The consignor keeps the goods on their own books — typically flagged as "inventory on consignment" or tracked at a separate location — even though the goods are physically at the consignee's site. The consignee records nothing on receipt: no inventory asset, no payable. When a unit sells, the consignee recognizes the cost of goods sold and a payable to the consignor in the same entry, and the consignor recognizes revenue at that same moment. Under ASC 606 (US GAAP) and IFRS 15 (international), this follows from the "control" test for revenue recognition: the consignor doesn't recognize revenue until the consignee's customer obtains control of the goods — not when the consignee receives them.