Explain consignment stock

Answer 1

Consignment Stock in

Consignment stock is the stock that is stored at the customer’s or company’s premises, but the ownership of the material remains with the vendor until the material is used.

In simple words:

The vendor supplies goods to the company.

The company keeps the goods in its warehouse.

Payment is made to the vendor only when the goods are consumed or used.

Key Features

Stock is physically available in the company warehouse.

Ownership belongs to the vendor.

No accounting entry is posted during Goods Receipt.

Liability arises only at the time of consumption.

Process of Consignment Stock

Create Consignment Info Record

Create Consignment Purchase Order

Goods Receipt for Consignment PO

Material is stored as consignment stock

Withdraw/consume material from stock

System creates liability to vendor

Invoice settlement is done

Important Movement Types

101 K – Goods Receipt for Consignment Stock

201 K – Consignment Consumption

411 K – Transfer Consignment Stock to Own Stock

Advantages

Reduces inventory carrying cost

Improves cash flow

Materials are available immediately when needed

Less risk for the purchasing company

Example

A company receives 500 spare parts from a vendor under consignment.

The parts are stored in the warehouse.

The company uses only 100 parts this month.

Payment is made only for those 100 parts used.

This helps the company avoid paying for unused inventory.