A consigned stock is a stock that is legally owned by one company but physically kept by another company. The profit, loss, risks and rewards associated with the consigned stock are owned by the first party that is legal owner of the consigned stock. The company that keeps the stock is nor the owner of the stock neither they sell the stock as this stock is not the part of their own inventory. The example of the consigned stock is the inventory that a supplier keeps in the customer ware house however the stock is no yet sold to the customer. The customer can sell from the inventory and also can use the inventory however it pays the supplier only when the inventory is sold or completely used by the customer.
The greatest benefit of consigned stock for the customer is that he doesn’t have to invest capital in purchasing the inventory as the inventory is kept with the customer but not purchased yet. However the customer has to bear the inventory keeping cost as the inventory is being maintained by the customer. In addition to that the consigned stock helps in saving time for the customer has he doesn’t have to wait for the new inventory to come and start selling consigned stock. The benefits of consigned stock for the supplier are that the supplier gets a chance of selling his goods when they are displayed in front of the end user. However there is also a risk associated with consigned stock as the supplier won’t get any money until of unless the entire consigned stock is sold.
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