Consigned goods are the physical merchandise at the center of a consignment arrangement: items placed with a retailer or dealer for sale, while ownership stays with the original owner, the consignor, until the goods are actually sold to a customer. The party holding and displaying the goods, the consignee, never buys them and therefore never owns them, which is the single fact that drives how consigned goods are accounted for by both parties.
Where consigned goods appear on the books
Because title never passes to the consignee, consigned goods are reported on the consignor's own balance sheet as part of its inventory, exactly as if they were still sitting in the consignor's own warehouse, even though they are physically located at the consignee's store. The consignee does not record consigned goods as inventory of its own, and does not record any liability for them either, since it owes nothing for merchandise it has not purchased; its books simply note, often outside the formal ledger, that it is holding goods belonging to someone else for the purpose of selling them.
Physical inventory counts and consigned goods
Consigned goods create a specific risk during year-end physical inventory counts: a retailer that carries consigned merchandise alongside its own purchased stock must identify which items belong to it and which are consigned, excluding the consigned portion from its own counted inventory total, while the consignor must be sure its own count correctly includes consigned goods sitting at other locations. Auditors pay particular attention to this distinction at any retail or wholesale business known to deal in consigned merchandise, since mistakenly counting consigned goods as the retailer's own inventory overstates that retailer's assets and understates the consignor's.