Question

All of the following statements relating to goods on consignment are true except:

a. goods on consignment are goods provided by the owner, called the consignor.

b. a consignee sells goods for the owner.

c. the consignor continues to own the consigned goods.

d. the consignee reports the goods in its inventory until sold.

e. the consignor reports the goods in its inventory until sold.

Answer 1

The incorrect statement about goods on consignment is that the consignee reports the goods in its inventory until sold. Goods on consignment remain part of the consignor's inventory until they are sold, as the consignee does not own them.

Step-by-step explanation:

Goods on consignment represent a business arrangement where a consignor entrusts goods to a consignee for the purpose of selling them. In this context, all the provided statements are generally accurate, except for statement (e). The consignor typically does not report the consigned goods in its inventory until they are sold.

In a consignment arrangement, the consignor, who owns the goods, delivers them to the consignee. The consignee, often a retailer, then sells the goods on behalf of the consignor. The consignor retains ownership throughout this process.

Regarding the exception (e), the consignor does not include the consigned goods in its inventory. Instead, the consignee reports the goods in its inventory until they are sold. Once a sale occurs, the consignor recognizes the revenue, and ownership transfers from the consignor to the buyer.

This distinction is essential for accurate financial reporting, reflecting the consignor's ownership status and preventing potential misrepresentation of inventory values on the consignor's financial statements until a sale is completed.