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Intermediate Certificate on pass

Consignment Stock

Hold stock you only pay for when it sells, and track whose goods sit on your shelf.

4 lessons 35 min 5-question assessment 75% to pass
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What you’ll learn

  • Explain how consignment stock works
  • Identify who owns consignment goods
  • Settle with the supplier when stock sells
  • Track consignment separately from owned stock

Course content

4 lessons · 35 min of reading
01
Lesson 1 of 4 Reading 8 min

How consignment works

In consignment, a supplier places stock on your shelves but you only pay for it when it sells. Unsold goods can be returned. You hold and sell the stock without buying it upfront.

It matters because consignment shifts the cash and risk of unsold stock back to the supplier — you tie up no money and carry no dead-stock risk, which is powerful for new or unproven lines.

A supplier gives you 100 units of a new product at a KES 600 cost, KES 900 retail. You pay nothing now; when 60 sell, you owe KES 36,000 and keep KES 18,000 margin, and you return the unsold 40 at no cost. Compared with buying all 100 outright (KES 60,000 of risk), consignment lets you test the line for free.

Key takeaways

  • You pay for consignment stock only when it sells.
  • Unsold goods can be returned to the supplier.
  • It shifts cash and dead-stock risk to the supplier.
  • Example: sell 60 of 100, owe KES 36,000, return 40 free.
02
Lesson 2 of 4 Reading 9 min

Who owns the goods

The key fact in consignment is ownership: the supplier owns the goods until they sell, even though the goods sit in your store. You are holding someone else’s stock, not your own asset.

Ownership matters because consignment stock should not appear as your inventory asset on your books — counting it as yours overstates your assets and confuses your true stock position.

Those 100 consignment units sitting in your aisle are not KES 60,000 of your inventory; they are the supplier’s goods you are minding. If you mistakenly book them as owned stock, your balance sheet shows assets you do not own and your stock value is inflated by KES 60,000 of goods you never paid for.

Key takeaways

  • The supplier owns consignment goods until they sell.
  • You are holding stock, not owning an asset.
  • Consignment must not be booked as your inventory asset.
  • Example: 100 consignment units are not KES 60,000 of your assets.
03
Lesson 3 of 4 Practice 9 min

Settling on sale

When a consignment item sells, ownership transfers and you now owe the supplier its agreed cost. Settlement is usually periodic — you report what sold and pay for exactly that, keeping your margin.

Settling correctly matters because the supplier needs an accurate sold-count to invoice you, and you must pay only for what actually sold, not what you were given. A wrong count means paying for stock still on the shelf.

At month end you report 60 of the 100 units sold; you pay the supplier 60 × KES 600 = KES 36,000 and keep your margin on those sales. The remaining 40 stay on consignment (or are returned). Tracking the sold-count accurately is what keeps that settlement honest for both sides.

Key takeaways

  • On sale, ownership transfers and you owe the agreed cost.
  • Settlement is usually periodic, based on what sold.
  • Pay only for sold units, not what you were given.
  • Example: 60 sold × KES 600 = a KES 36,000 settlement.
04
Lesson 4 of 4 Reading 9 min

Tracking separately

Consignment stock must be tracked separately from owned stock so you always know which units are yours and which are the supplier’s. Mixing them corrupts both your stock value and your settlement.

Separate tracking matters because at any moment you must answer two different questions: how much owned inventory do I have (an asset), and how much consignment do I owe for once sold (a liability when it sells).

If 100 consignment units and 200 owned units of the same SKU sit mixed as "300 on-hand", you cannot tell that selling 250 means 200 of yours plus 50 of theirs to settle. Flagging consignment separately lets AWRA value only your 200 as an asset and compute the exact KES owed when consignment sells.

Key takeaways

  • Track consignment separately from owned stock.
  • Mixing corrupts stock value and settlement.
  • You must know owned (asset) versus consignment (settle on sale).
  • Example: 100 consignment + 200 owned must not merge into "300 on-hand".

Finished the material?

Take the 5-question assessment and earn your certificate — 75% to pass.

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