Definition: A consignee is the party who receives goods from the owner, holds them, and agrees to sell them on behalf of the owner. In other words, it’s the entity that is in possession of consigned goods and agrees to sell them for the owner.
What does Consignee Mean?
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This arrangement is called a consignment and is a very common business practice in the retail industry, especially the retail music industry.
Example
Musicians often want to sell their used gear but don’t have the customer base to do it. In a consignment, the retailer takes possession of the used instrument and sells it to the store’s customers on behalf of the musician. After the instrument is sold, the store takes its commission fee and gives the rest of the proceeds to the owner or consignor.
This arrangement works well for both parties. The musician gets to market and sell his used instrument to a new customer base and the music store earns a commission fee based on the sale.
It’s important to note in our example that the music store never actually owns the instrument. It has possession of the instrument while it is being marketed to customers, but the legal title of the instrument always stays with the owner. This is true with all consignments. The consignee never takes legal title of the consignment.
This means that the music store will not report this instrument on its balance sheet as a piece of inventory. Instead, it will create a liability account called consignments to show that it currently possesses the instrument, doesn’t own it, and is required to give it back to the owner if the consignment agreement is terminated or the owner decides not to sell it anymore. Typically, these liabilities are reported in the current section on the balance sheet because they are expected to sell within one accounting period.
