Define consignment and how it affects revenue recognition?

• A. Ownership remains with the consignor until sale; revenue is recognized by the consignor when the sale occurs by the consignee.
• B. Ownership transfers to the consignee when goods are delivered; revenue recognized by consignee on delivery.
• C. Ownership remains with the consignor until payment is received by the consignor.
• D. Revenue is recognized by the consignee when payment is collected.

Answer: (A)

In a consignment arrangement, the owner (the consignor) keeps legal title and the risks and rewards of ownership until the goods are sold to a third party. Because ownership and control stay with the consignor until sale, revenue is recognized by the consignor when the consignee actually makes a sale to the customer. The consignee typically does not record revenue from the sale themselves; they may earn a commission and reduce their inventory, but the revenue and cost of goods sold are recognized by the consignor at the point of sale to the end customer, not when the goods are delivered to the consignee or when payment is collected. This is why the statement that best fits is that ownership remains with the consignor until sale, and revenue is recognized by the consignor when the sale occurs by the consignee. The other options conflict with who retains ownership and when revenue is earned in a consignment arrangement.