[Opinion] Consignment stock on Sage business cloud

[Elsa Groenewald]

I am really struggling to get my head around how to treat Consignment stock in the Items module.

I bring the stock in at zero value to rework it into a finished product.
Whatever I use, I have to buy from the supplier with a supplier invoice at the value agreed, this will double up my stock quantities
when I sell the stock I need to decide whether I sell it from the zero value stock or the newly purchased stock - but that will not update my original consignment stock

yes, I am confusing myself here !

please help if any of you have a foolproof process for this

Elsa

[LeRoux]

It sounds like you need BOM - we bought the module but havent started using it yet. It will take the components and combine it into one code for selling.

[adrianh]

I have a question regarding the matter of consignment stock?

Lets say you bring consignment stock into your business and you expect to make a profit. The stock is is to be sold at R50k and you are supposed to hand over R30k to your supplier.

The building burns down and the stock is lost in the fire.

Where do you show in your books that the stock was brought in and was expected to sell at a particular value giving you a particular profit?

Skipping this entry might be fine for R100 worth of arts n crafts but not so much for a R800k car sold on consignment.

The question is thus: How do you protect yourself and your customer against this possible loss if the entry isn't made (although no money has transacted you still hold real value in your hands-that belongs to a third party)

I'm just curious... I ask this because a friend lost R9k worth of consignment stock when a business went bang and the stock was not documented properly by the shop. ...yes it was an arts n crafts shop in Cape Town.

[Andromeda]

I am really struggling to get my head around how to treat Consignment stock in the Items module.

I bring the stock in at zero value to rework it into a finished product.
Whatever I use, I have to buy from the supplier with a supplier invoice at the value agreed, this will double up my stock quantities
when I sell the stock I need to decide whether I sell it from the zero value stock or the newly purchased stock - but that will not update my original consignment stock

yes, I am confusing myself here !

please help if any of you have a foolproof process for this

Elsa

Hi Elsa

From when consignment stock is received, it is a fiduciary asset and there exists an equal related liability. I am not sure how you will account for it in your setup, but the situation is that the liability will always equal the asset.

If you then use of the consignment stock to manufacture end products, the value of the consignment stock is a cost of manufacture, like any other stock used in the manufacturing process. The credit would be to a provision account. A BOM module will enable and assist this, especially if it is regular and material.

The consignor probably invoices you at month end for the reduction in stock holding and you would debit the provision account and credit accounts payable with that amount. Any difference between what the consignor invoiced and the relevant cost of manufacture you can account for as a variance (a cost of manufacture).

In a nutshell my advice would be to treat it like any other raw material except that you need to account for a receipt that is not invoiced; it will only be partly invoiced at month end.

[Andromeda]

I have a question regarding the matter of consignment stock?

Lets say you bring consignment stock into your business and you expect to make a profit. The stock is is to be sold at R50k and you are supposed to hand over R30k to your supplier.

The building burns down and the stock is lost in the fire.

Where do you show in your books that the stock was brought in and was expected to sell at a particular value giving you a particular profit?

Skipping this entry might be fine for R100 worth of arts n crafts but not so much for a R800k car sold on consignment.

The question is thus: How do you protect yourself and your customer against this possible loss if the entry isn't made (although no money has transacted you still hold real value in your hands-that belongs to a third party)

I'm just curious... I ask this because a friend lost R9k worth of consignment stock when a business went bang and the stock was not documented properly by the shop. ...yes it was an arts n crafts shop in Cape Town.

More than anything else, consignment stock is a payment arrangement. There ought to be an agreement between consignor and consignee that shifts responsibility to the consignee, for the inventory. In principle the consignee is responsible for inventory and his accounting should preferably reflect that.