# Consignment Accounting: When Consigned Goods Become Revenue *Some goods sit in your shop but are not yours; others sit with your agent and have not sold yet. When does that count as a sale and revenue, and when does it stay a consignment?* > **In short:** Consignment accounting explained: goods stay in the consignor's inventory until sold, revenue is recognised on the sale, and the agent books only commission. - **URL:** https://www.snad.io/en/blog/muhasabat-tawkilat-bidaa-amana-consignment - **Arabic original:** https://www.snad.io/blog/muhasabat-tawkilat-bidaa-amana-consignment - **Category:** Guides — Core Accounting - **Tags:** Consigned Goods, Consignment, Commercial Agencies, Commission Agent, Revenue Recognition, Inventory, Accounting - **Published:** 2026-06-26 - **Updated:** 2026-08-02 - **Publisher:** Snad (snad.io) Consignment and agency accounting rests on one core rule: shipping goods to an agent is not a sale. The goods stay the consignor's property and remain in its inventory until they are sold to the end customer, and only then is revenue recognised. The agent's revenue is its commission, not the full sale value. Confusing the two inflates turnover and throws off inventory, tax and profitability. This guide explains the accounting for both the consignor and the agent, with a worked example of a full cycle from shipment to sale. ## What Consignment Is **Consignment** is an arrangement in which one party (the **consignor**) ships its goods to another party (the **agent**) to sell them on its behalf for a commission, **while ownership of the goods stays with the consignor until they are sold** to the end customer. This is common in commercial agencies, showrooms and agency sales platforms. The most frequent accounting mistake: treating the shipment of the goods as a sale, when no sale has taken place yet and neither ownership nor risk has moved. ## The Rule: Ownership Does Not Transfer on Shipment The core principle: **shipping goods to an agent is not a sale**. - The goods stay **inside the consignor's inventory**, even when they physically sit in the agent's premises. - No revenue and no profit are recognised on shipment. - The sale — and with it the revenue — happens only when **the agent sells the goods to the end customer**. This distinction decides when revenue appears and for whom, and who carries the inventory on their balance sheet. It also stops a phantom profit from being recognised before its time. ## Accounting for the Consignor (the Goods Owner) From the consignor's side: - **On shipment**: the goods move into an "inventory held by agents" account. They do not leave its assets and are not recorded as a sale. - **When the agent sells them**: revenue is recognised in full, the cost of goods sold is recorded, and the **agent's commission** is charged as an expense. - **Unsold goods** stay the consignor's inventory and can be recalled. That way the consignor's revenue appears at the right moment and at its full value, before the commission is deducted. ## Accounting for the Agent (the Consignee) From the agent's side: - Goods received on consignment are **not its inventory** and do not appear among its assets, because it does not own them. - The agent tracks them in an **off-balance-sheet record** (consigned quantities) for control purposes. - On sale: the agent collects the amount for the consignor and recognises **only its commission** as revenue. The common mistake is for the agent to book the full sale value as its own revenue. That inflates its turnover with money that was never its own, and it distorts both its tax position and its profitability. ## Commission Is the Agent's Revenue, Not the Sale Value The single most important point for agents and commercial agencies: **your revenue is the commission, not the full booking or sale value**. If an agent sells goods for SAR 100,000 at a 10% commission, its revenue is **SAR 10,000**, not 100,000. The remaining 90,000 belongs to the consignor and is passed through to it. Mixing the two inflates the agent's turnover to ten times its real size, distorting Value Added Tax (VAT), profitability and every financial ratio. Separating them properly shows the agent's actual level of activity. ## A Worked Example of a Full Consignment Cycle A supplier (the consignor) shipped goods costing **60,000** to an agent to sell, at a 15% commission. - **On shipment**: no sale; the 60,000 stays as inventory held by agents in the consignor's books. - The agent sold the goods for **SAR 80,000**: - **The consignor**: revenue 80,000, cost of goods 60,000, agent commission 12,000 → profit 8,000. - **The agent**: commission revenue of 12,000 only, and passes 68,000 through to the consignor. No revenue appears before the moment the agent actually sells. ## The Impact on Inventory and VAT A consignment arrangement has consequences you have to get right: - **Inventory**: it stays on the consignor's balance sheet, not the agent's, so each party's stock count has to reflect that accurately. - **VAT**: it follows the actual sale to the end customer and the agent's commission, not the mere transfer of goods on consignment. Getting the inventory location or the tax timing wrong is one of the biggest sources of stock-count and filing discrepancies in agency businesses. Review how the Zakat, Tax and Customs Authority (ZATCA) rules apply to your case. ## How Snad Manages Your Consigned Goods and Agencies In Snad, consigned goods are tracked in a **separate inventory held by agents** that stays within the consignor's assets until it is sold, so no revenue is recognised before the actual sale. On sale, **the system records the revenue, the cost and the agent's commission automatically** and separates what belongs to the consignor from what belongs to the agent. Each side's turnover and profit then show correctly, and inventory and tax land in the right place. ## Frequently asked questions ### What is consignment? An arrangement in which the consignor ships its goods to an agent to sell them on its behalf for a commission, while ownership of the goods stays with the consignor until they are sold to the end customer. It is common in commercial agencies, showrooms and agency sales platforms. ### Is revenue recognised when the goods are shipped to the agent? No. Shipping the goods is not a sale, so they stay inside the consignor's inventory even though they physically sit with the agent. Revenue arises only when the agent sells the goods to the end customer, so no phantom profit is recognised before its time. ### What counts as the agent's revenue in a consignment arrangement? The agent's revenue is its commission only, not the full sale value. If it sells goods for 100,000 at a 10% commission, its revenue is 10,000, not 100,000; the rest belongs to the consignor and is passed through to it. Mixing the two inflates its turnover and distorts its tax. ### Whose balance sheet do consigned goods sit on? They stay in the inventory of the consignor (the goods owner), not the agent, because ownership has not transferred. The agent tracks them in an off-balance-sheet record for control only, and each party's stock count has to reflect that accurately to avoid count discrepancies. ### How is VAT handled on consigned goods? It follows the actual sale to the end customer and the agent's commission, not the mere transfer of goods on consignment. Getting its timing wrong is one of the biggest sources of filing discrepancies, and it is worth reviewing how the ZATCA rules apply to your case. ### What is the difference between a normal sale and a consignment sale? In a normal sale, ownership and risk pass to the buyer immediately and revenue is recognised. In a consignment sale, ownership stays with the consignor until the agent sells to the end customer, so revenue recognition is deferred and the inventory stays with the consignor until then. --- ## About the publisher **Snad (سند)** — a private Saudi software company based in Riyadh, founded 2025. Legal form: Sole proprietorship. Commercial registration: 7038154642 VAT number: 310959226500003 Only official domain: snad.io > Snad is a private commercial business-management platform. It is not a > government body, not a bank, and not a government services portal, and it > is not affiliated with any government entity. Any site or app with a > similar name is unrelated to Snad.