Improving reporting outcomes for businesses holding/selling Consignment Stock
I've been working on finding a better way to manage Consignment Stock (as Consignee) than DEAR's advised process, simply because you get no margin reporting using DEAR's way, because the value of the goods is never linked to those sold.
DEAR's way is as follows (high level overview):
- Create Stock Adjustment to bring items into "Consignment" Location. Items must have quantity but have $0.00 unit cost - as we do not own the items yet.
- Sell the items, ensuring to Pick from the "Consignment" location - this enables you to run an Inventory Movement Details Report to determine what Consignment items were sold.
- Use this data in 2) to create a PO to pay for the goods you have sold - ensuring you code the Invoice lines to an expense account so that the items received are "written off" straight away.
- Create Purchase Order for items wanted from Consignment Supplier (let's assume total cost of items is $10,000)
- Receive items into "Consignment" Location per normal Purchase Process
- Process Supplier Invoice as normal BUT add an additional charges line called "CSTOCK: Consignment Items held in Stock" (Current Liability account). This line should have a quantity of 1 and a price of -$10,000 - this ensures that the line total is -$10,000 and therefore bring the invoice to a $0.00 total.
- Prepare sale order as per normal process
- Ensure Consignment items are picked from Consignment Location
- Finalise Sale Invoice
- Run Inventory Movement Details report to determine units sold
- Create PO to Supplier reflecting these
- Process Supplier Invoice for these items when it arrives - ensuring that the GL code is changed to the Current Liability account
- Click Yes when prompted about the items being written off immediately because the GL account you're using is a Liability/Expense and not an Asset
- Process the Stock Receive to the Consignment Location
- Small businesses without a strong accounting skillset in-house may struggle to manage the flow of info/reconciliations needed for the Current Liability account, due to timing differences between Stock value reduction on Sale, and processing the supplier invoice for items sold.
- Technically we do not own the stock so shouldn't be reporting this as stock value (minor issue to me, not sure how anyone else feels)
- User data entry issues (another thing for them to remember vs normal consignment process)