Consignment Stock and Agency Sales

Transcription

1 Consignment Stock and Agency Sales What is Consignment stock? Consignment stock is stock that is in the possession of the customer, but is still owned by the supplier. An arrangement is made with the original seller, (consignor), whereby the title of the stock is transferred to the recipient (consignee) when the stock has actually been sold. The stock is not a true asset to the consignee as they have no ownership of the stock until it has been sold, although it is common to enter the consignment stock into the accounting software to help keep track. Example You hold a number of software products on consignment for a supplier. At the end of the month you advise the supplier of the amount of stock sold and an invoice is raised for payment of the sold stock. Often the consignment stock is re-ordered at this point. Owns consignment stock Supplier Consignor Supplier re-stocks Stored at retailer to sell Retailer Consignee Retailer pays supplier less commission and provides RCTI if agreed Sales to customers Customer Customer pays retailer BKP-Consignment Stock and Agency Sales (April 2017) The Institute of Certified Bookkeepers Page 1

2 GST and Consignment Depending on the agreement you make in regards to the consignment depends on how the GST is applied. There are 2 types of consignment sales: 1. Sale or Return Sale This is when a business purchases the goods from the owner or supplier once they find a buyer. The business buys the goods in its own right from the supplier and sells them to the customer. Therefore the business pays full GST on the sale of the goods (if registered for GST). The stock may be held by the business making the sale until a buyer is found, or the stock may be ordered from the owner/supplier when a buyer is found. If any of the following conditions apply then it is likely the sale will be a sale or return arrangement: the amount paid to the owner when a buyer is found is agreed in advance any amount received from the customer that is over the agreed purchase amount is kept by the business the business sets the sale price of the goods the business is not obliged to tell the owner of the goods the final sale price or details of how much profit was made on the sale the business has to provide a warranty on the goods the business has to guarantee title to the goods the business is prevented by a state law from selling goods as an agent - this is common in the motor vehicle industry the business does not bear any commercial risk; that is, if the goods are not sold, the business is not obliged to purchase them. You can claim a GST credit on the consigned goods purchased providing the owner/supplier is registered for GST and the sale by the owner to the business is a taxable sale 2. Agency Sales (Commission Based) An agency sale is when the consigned goods are sold on behalf of the owner/supplier of the goods. The business making the sale is acting as an agent. In these circumstances the business would usually receive a commission. Therefore the business does not pay GST on the full sale as they would be paying the owner of the goods the sale amount less the commission. The business would only pay GST on the commission received. If any of the following conditions apply then it is likely the sale will be an agency arrangement: the business does not set the sale price of the goods the business receives either an agreed flat rate or percentage commission on completion of the sale the business does not hold the goods in its own right the business and the owner of the goods agree that the business will act as an agent (preferably that arrangement is in writing) BKP-Consignment Stock and Agency Sales (April 2017) The Institute of Certified Bookkeepers Page 2

3 When the owner/supplier is not registered for GST The ATO advises that if the owner/supplier is not registered for GST or is not selling the goods in the course of running a business and the business selling the goods is registered for GST, the business must still pay GST to ATO on the commission received but the owner/supplier does not have to pay GST to the ATO on the sale. Bookkeeping Process Consignee (Seller of Goods) Type 1 - Consignment sales tracking inventory in accounting software (income from RRP less wholesale price) Controlling the stock you have to sell but don t own 1. Set up a new asset account (called Consignment Stock or similar) to allocate the consignment stock 2. Set up new income account (called Sale of Consignment Stock or similar) 3. Set up new cost of sale account (called Consignment Stock Sold or similar) the income and the COS accounts will help you identify the goods to be notified to the owner of the goods once sold 4. Receive stock from supplier to consignment stock, by creating a purchase order/bill 5. Track sales of these items (identifier, special codes) 6. From sales reports create a RCTI for supplier identifying the sales for the month(note: A recipient tax invoice can only be created if the both parties have agreed and both are registered for GST Refer to ICB RCTI Resource) 7. Order from supplier to re-stock goods sold 8. Receive the added stock into your accounting system Type 2 - Commission based only (inventory tracked in a spreadsheet) 1. Set up income account (called Commission on Consignment Goods or similar) 2. Set up liability account (called Consignment Creditor or name of supplier) 3. Set up spreadsheet to track inventory with assigned RRP 4. On sale of goods, receipt payment including RRP commission 5. Pay supplier their cost Bookkeeping Process Consignor (Supplier of Goods) Type 1 - Consignment Sale tracking inventory in accounting software Supplier - Controlling the stock on consignment 1. Set up inventory asset account for consignment stock 2. Move stock from trading stock to consignment stock optional for tracking 3. Complete an order or invoice to identify consignment stock to each customer 4. Receive monthly RCTI from customer identifying the sales for the month 5. Complete an invoice removing the stock from the consignment stock account 6. If goods are returned move stock journal the consignment stock back to trading stock account BKP-Consignment Stock and Agency Sales (April 2017) The Institute of Certified Bookkeepers Page 3

4 Alternative - Controlling the stock on consignment 1. Issue an invoice to identify consignment stock to each customer 2. Receive monthly RCTI from customer identifying the sales for the month 3. Reverse the consignment invoice of unsold stock 4. Recognise payment from consignee of goods sold 5. Issue an invoice to identify consignment stock for the next period 6. If goods are returned make sure the consignment stock reflects the actual amount of stock on consignment Type 2 - Commission based only (inventory tracked in a spreadsheet) 1. Set up income account (called Commission on Consignment Goods or similar) 2. Set up spreadsheet to track inventory with assigned RRP Toy Maker (Consignor) Send Goods Account Dr Cr Tax for Retailor for Consignment Sale Consignee XX Debtor Asset $ No Tax Stock on Hand Asset $ No Tax Sale Consignment Stock Income $ GST GST Collected Liability $ No Tax Cost of Goods Sold COGS $ No Tax Reverse Unsold Stock for Month leaving sold stock Consignee XX Debtor Asset $ No Tax Stock on Hand Asset $ No Tax Sale Consignment Stock Income $ GST GST Collected Liability $ No Tax Cost of Goods Sold COGS $ No Tax Payment Consignment Stock Payment Received from Consignee Bank $ No Tax Consignee XX Debtor Asset $ No Tax Retailer (Consignee) Receive Goods for Account Dr Cr Tax Consignment Sale Consignment Stock 3 $ GST Asset $ GST GST Paid Liability $ No Tax Trade Creditor Liability $ No Tax Sale of Consignment Goods Receipt of Sale from Customer RRP Bank $ No Tax Sale of 1 x Consignment Good Income $ GST GST Collected Liability $ No Tax Consignment Stock Sold COGS $ No Tax Consignment Stock Asset $ No Tax Payment to Toy Maker (Consignor) Payment to Supplier Bank $ No Tax Trade Creditor Liability $ No-Tax BKP-Consignment Stock and Agency Sales (April 2017) The Institute of Certified Bookkeepers Page 4

5 Reverse Unsold Stock for Month Consignment Stock 2 $ GST Asset $ GST GST Paid Liability $ No Tax Trade Creditor Liability $ No Tax (Next Month Add Consignment stock back in) 3. On sale of goods, receipt payment including RRP commission 4. Pay supplier their cost Example 1 Consignment stock recorded in a spreadsheet and Commission Based Only A sculptor (Consignor) engages with a local gallery (Consignee) to sell their artwork for a commission. The sculptor is not registered for GST but the Gallery is registered for GST. The sculptor receives a monthly RCTI from the gallery identifying the sales for the month. (Consignment Stock is recorded in a spreadsheet for both Consignor and Consignee) Sculptor (Consignor) DR CR Receipt of Sale from Gallery Owner Bank $1, No Tax Gallery Agent Commission Expense $ No Tax Sale of Consignment Goods Sculpture Income $1, No Tax Gallery Owner (Consignee) DR CR Receipt of Sale from Customer Bank $1, No Tax Commission on Sale from Sculptor Income $ GST GST Collected Liability $22.73 No Tax Payment to Sculptor Bank $1, No Tax Example 2 - Consignment stock recorded in inventory A retail store agrees with a local toy maker to sell their goods on consignment. The agreement between Retailer and Toy Maker is that the goods can be sold at any retail price but Toy Maker purchase price is fixed. Both parties are registered for GST References ATO Consignment Sales ICB Recipient Tax Invoice ICB Disbursement vs Oncosts ICB Second Hand Goods BKP-Consignment Stock and Agency Sales (April 2017) The Institute of Certified Bookkeepers Page 5