Consignment stock is stock legally owned by one party, but held by another, meaning that the risk and rewards regarding to the said stock remains with the first party while the second party is responsible for distribution or retail operations.
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Ownership
Ownership of consignment stock is passed only when the stock is used (issued or sold in the case of a shop). Unused stock in a warehouse may be returned to the supplier when it concerns standard manufactured products. With customer specific items, agreements concerning returning products, should be negotiated.
Accounting
As ownership of consignment stock is not transferred until use, invoicing is not immediate. To account for a replenishment of consignment stock at a customer site, a manufacturer must credit inventory and debit customer consignment stock. Only after a customer actually uses the consignment stock may an accounts receivables be created.