Why consignment requires dedicated accounting treatment
In B2B trade and distribution, it is common for a supplier to leave goods with a customer or reseller without immediately transferring ownership. This is known as consignment stock: the goods are physically in your warehouse or at your partner's point of sale, but remain the property of the supplier until the agreed sale or withdrawal takes place.
For a Swiss SME, the most costly mistake is to treat these goods as a standard purchase. If you record them in inventory at purchase cost, you inflate the value of closing stock, distort gross margin, and alter key indicators such as working capital and ROI. Conversely, if you omit them entirely, you risk underestimating operational exposure and failing to correctly recognise revenue and costs at the moment of transfer of ownership.
This guide explains how to account for consignment stock in compliance with the Code of Obligations (CO), Swiss accounting standards (Swiss GAAP FER / professional auditing standards), and the VAT Act (MWSTG), with practical examples for business owners and fiduciary firms using Accountex.
Own stock vs consignment goods
Before making any entries, clearly distinguish the two situations. The decisive criterion is not the physical location of the goods, but the transfer of risk and ownership:
| Criterion | Own stock (purchase) | Consignment goods |
|---|---|---|
| Ownership | Held by the depositary / reseller upon receipt | Held by the supplier (depositor) until withdrawal or sale |
| Risk of loss | Borne by the buyer | Remains with the supplier, unless contract terms provide otherwise |
| Balance sheet valuation | Inventory (current assets) | Off-balance sheet or memorandum account; not recorded as own inventory |
| Impact on margin | Cost at the time of purchase | Cost only upon transfer of ownership (sale to the end customer) |
| Supplier invoice | Upon delivery or according to payment terms | Upon sale, withdrawal, or agreed deadlines (e.g. stock aging) |
| VAT (Switzerland) | Tax due on purchase if taxable | Generally upon transfer of ownership, not upon mere deposit |
| Physical inventory | Counted in own inventory | Tracked separately; labelled as third-party consignment |
Legal basis: consignment and transfer of ownership
Under Swiss law, commercial consignment is generally based on an atypical contract modelled on deposit (Art. 472 et seq. CO): the depositary is obliged to store the goods but does not acquire ownership until the agreed transfer occurs. The commercial contract — often a consignment agreement or a specific clause in a distribution contract — defines when the transfer takes place: typically upon sale to the end customer, withdrawal from consignment, or after a period of storage.
If you are the depositary (reseller)
You store the supplier's goods. Do not include them in your own inventory until you become the owner. Document in writing the conditions for withdrawal, liability for damage, the obligation to provide periodic reporting, and return procedures.
During the audit, the auditor will verify that the value of inventory does not include third-party stock and that contractual evidence of the consignment arrangement exists.
If you are the depositor (supplier)
The goods remain on your balance sheet until the agreed transfer. You must track them as stock held by third parties on consignment, separate from your own warehouse, and monitor ageing to avoid unrecognised obsolescence.
At the moment of transfer of ownership to the depositary, issue the sales invoice and recognise revenue; until then, no revenue should be recorded.
Accounting on the depositary side: protecting inventory and margins
The depositary must not record consignment goods in the "Inventory" account (e.g. account 1200 in a typical Swiss chart of accounts). Here is the correct approach in three stages:
1. Receipt of goods on consignment
Record the movement only in management accounting or in a memorandum / off-balance sheet account (e.g. account 9000 "Third-party goods on consignment"). No debit to inventory, no credit to accounts payable.
In Accountex, create an inventory item with the "Consignment" flag and a separate logical warehouse. This way the ERP tracks quantities without affecting the valuation of own stock.
2. Sale to the end customer
At the time of sale, ownership transfers from the supplier to the depositary and, at the same time, to the customer. Record:
- Sales revenue (account 3200) and VAT due on the selling price
- Cost of materials (account 4000) and amount payable to the supplier (account 2000), based on the agreed consignment price
- Outflow from the consignment memorandum account (adjustment to account 9000)
Gross margin reflects only the difference between the selling price and the purchase cost at the actual moment of transfer — not before.
3. Return to the supplier or write-off
If the goods are returned to the supplier without being sold, record only the outflow from the memorandum account. No cost, no revenue. If the contract provides penalties for excessive storage, those must be recorded separately as an operating expense.
Accounting on the supplier (depositor) side
The supplier keeps the goods on its balance sheet until ownership is transferred. Typical accounting treatment includes:
| Timing | Entry | Effect on margins |
|---|---|---|
| Shipment to consignment | Internal transfer: from "Own warehouse inventory" to "Stock held by third parties on consignment" (dedicated current asset sub-account) | No revenue; total inventory value unchanged |
| Sale / withdrawal by depositary | Revenue (3200), VAT, receivable from depositary; cost of goods sold (4000); close "Stock held by third parties" item | Margin recognised only at this point |
| Write-down / obsolescence | Provision or value adjustment on consignment stock, as with own inventory (prudence principle) | Reduction in future margin |
| Return to own warehouse | Reverse transfer from "Stock held by third parties" to "Own warehouse inventory" | No effect on revenue |
For year-end closing, include consignment stock held by third parties in the overall inventory and verify that the depositary has sent you written confirmation of quantities on hand at the balance sheet date (Art. 958 CO — individual valuation of inventory).
Swiss VAT: when the tax liability arises
Under the VAT Act (MWSTG) and the practice of the Federal Tax Administration (FTA), the transfer of ownership of tangible movable goods is generally the relevant moment for VAT purposes. The mere deposit of goods with a third party, without transfer of ownership, does not as a rule constitute a taxable "supply".
Watch for exceptions: if the contract is drafted ambiguously and the invoice is issued upon physical delivery, the FTA and the auditor may classify the transaction as an immediate sale. Similarly, triangular transactions or cross-border consignments may trigger different VAT obligations: for example import tax, acquisition tax (Art. 45 MWSTG), or the simplification for consignments in Switzerland under Art. 4 VAT Ordinance (MWSTV), if the recipient and price are already known at import.
VAT checkpoints
- Align the supplier invoice date with the transfer of ownership, not with shipment to consignment
- Verify whether the depositary is an end customer or a reseller entitled to input tax deduction
- Document the flow with delivery notes or periodic sales reports signed by the depositary
- In the case of stock aging with automatic invoicing, VAT accrues at the contractual deadline for forced withdrawal
Numerical example: industrial distributor in Ticino
Beta SA, a trading SME based in Lugano, receives 100 units of electronic components on consignment from supplier Alpha GmbH (Germany). Consignment price: CHF 45/unit. Beta sells to the end customer at CHF 72/unit (+ VAT 8.1%).
| Transaction | Amount | Beta SA entry (depositary) |
|---|---|---|
| Receipt of 100 units on consignment | CHF 4'500 (informational value) | Memorandum account 9000: +CHF 4'500 — no effect on P&L or inventory |
| Sale of 30 units to customer | Revenue CHF 2'160 + VAT CHF 175 | Debit receivables 1'100 / Credit revenue 3'200 CHF 2'160; VAT payable 2200 CHF 175; Cost 4'000 CHF 1'350 / Payables 2'000 CHF 1'350; Memorandum account 9000 −CHF 1'350 |
| Return of 20 units to Alpha | CHF 900 (informational) | Memorandum account 9000: −CHF 900 — no cost |
| At year-end: 50 units on hand | CHF 2'250 (informational) | Off-balance sheet disclosure; Beta's own inventory: CHF 0 for these units |
Gross margin on the 30 units sold: CHF 2'160 − CHF 1'350 = CHF 810 (37.5%). In the cross-border case, upon transfer of ownership Beta pays import tax and may deduct it as input tax if subject to VAT. If Beta had recorded the entire batch in inventory upon receipt, tied-up capital would have appeared inflated by CHF 4'500 and the period margin would have been distorted.
Physical inventory and reconciliation
Operational best practices
- Dedicated physical warehouse or zone, labelled "Property of [Supplier]"
- Annual inventory count with separate tally for own stock / third-party consignment
- Monthly report to the supplier: sales, returns, stock on hand
- Clause on liability for theft, fire, and damage (insurance)
Year-end closing
- Written confirmation of consignment stock on hand at the balance sheet date
- Verify that the memorandum account matches physical inventory
- Notes to the financial statements: disclosure on goods held in custody for third parties, if material (Art. 959 CO)
- Coordination with the auditor before final inventory valuation
Configuring Accountex for consignment
Accountex lets you manage consignment without compromising inventory and margin reporting:
Logical warehouse "Third-party consignment"
Separates consignment stock physically and in accounting terms. Valuation reports automatically exclude this warehouse from the value of own inventory.
Items with type "Consignment"
Link each consignment item to the depositor supplier. Upon sale, Accountex generates in a single step the customer invoice, the cost entry to the supplier, and the memorandum account adjustment.
Stock on hand and ageing reports
Monitor how long goods remain on consignment. Useful for triggering automatic invoicing clauses or negotiating returns before obsolescence.
Margin dashboard by channel
Compare margins on sales from own stock vs consignment, to assess whether the consignment model is economically sustainable compared with advance purchase.
Common mistakes to avoid
| Mistake | Consequence | Correction |
|---|---|---|
| Recording consignment as a purchase | Inflated inventory and payables; margin understated on future sales | Reversal and adjustment to memorandum account; cost at the time of sale |
| Omitting consignment stock from inventory | Unexplained physical variances; risk of dispute with the supplier | Separate count and reconciliation with partner reports |
| Charging VAT upon receipt of consignment goods | Advance payment of tax; possible challenge by the FTA | VAT only upon documented transfer of ownership |
| Missing or generic consignment contract | Uncertainty over ownership, risk, and tax timing | Written agreement with CO Art. 472 et seq. clauses and clear commercial terms |
In summary
Consignment goods require accounting that clearly separates physical custody from legal ownership. The depositary tracks stock outside own inventory until transfer; the supplier keeps the value on its balance sheet until the sale is completed. Only in this way do inventory, margins, and the VAT position remain faithful to economic reality.
With a clear contract, dedicated inventory procedures, and correct configuration in Accountex, the consignment model becomes a tool for commercial flexibility — not a source of accounting distortions at year-end.