Explanatory Notes

1. Accounting for "Goods Sold on Approval" or " Sale or Return" Basis
Accounting for "Goods Sold on Approval" or " Sale or Return" Basis
Goods are sometimes sent to the customers on approval basis. Goods sent on ‘approval’ means goods sent to the
customers with the option to the buyer to retain or return the goods within a specified period. The ownership of the
goods is passed only when the buyer gives his approval or if the goods are not returned within that specified period .
When the Business sends goods casually on Sale or Return :
When the transactions are few, the seller treats the transactions as an ordinary sale. If the goods are returned a reverse
entry is passed to cancel the previous transaction. If, at the year–end, goods are lying with the customer entry for sales
made earlier is cancelled and the value of the goods with the customers treated as closing stock .
Journal Entries
When goods are sent
Sundry Debtors A/c Dr. (Invoice Price or Selling Price)
To Sales A/c
When goods are returned or rejected
Sales A/c Dr. (Invoice Price or Selling Price)
To Sundry Debtors A/c
When goods are accepted ---------No Entry ( When goods are sent on Sale or Return basis the normal entry
for sale has been already recorded , and hence on goods accepted by the Customers again no entry is required
to be passed . )
When unapproved goods are existing on the last day of the year
I) Sales A/c Dr.
To Sundry Debtors A/c (Invoice Price or Selling Price)
(When the above unapproved goods are returned in future no entry will be passed to record the same. )
II) Should be included in Closing stock and valued at Cost or Market Value whichever is lower
Stock with Customers on sale or Return A/C.-----Dr.
To Trading A/C .
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2. Accounting for "Goods Sold on Approval" or " Sale or Return" Basis
Example : A Ltd sells goods to its customers on Sale or Return basis. The following data is provided :
Sep-15 Sent goods to its customers on Sale or Return basis(at Cost plus 33.33% ) Rs. 1,00,000
Oct-20 Goods returned by Customers Rs. 40,000
Nov-25 Received letters of approval from customers Rs. 40,000
Dec-31 Goods with customers awaiting approval Rs. 20,000
Sep-15 Sundry Debtors A/c Dr. 1,00,000
To Sales A/c 1,00,000
(Being goods sent to Customers on Sale or Return basis . )
Oct-20 Returns Inward A/C. Dr. 40,000
To Sundry Debtors A/C. 40,000
(Being goods sent to Customers on Sale or Return basis, returned by Customers . )
Nov-25 Goods approved by Customers------------ No Entry Required .
Dec-31 Sales A/C Dr. 20,000
To Sundry Debtors A/C. 20,000
(Being cancellation of original entry of sale in respect of goods on sale or
return basis lying with the Customers at the Year end awaiting approval )
Dec-31 Stock with Customers on sale or Return A/C.-----Dr. 15,000
To Trading A/C . 15,000
(Being adjusting for cost of goods lying with the Customers at the Year end awaiting approval )
Calculation of goods with Customers = (20,000 X 100 ) / 133.33
at Cost = Rs .15000
Note : Unapproved Stock at the Year end with Customers on sale or Return basis will be added to the Cl. Stock on the
Asset Side of the Balance Sheet and will be valued at Cost or Market Value whichever is lower .
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3. Accounting for "Goods Sold on Approval" or " Sale or Return" Basis
When the Business sends goods frequently on Sale or Return Basis :
In this method a specially ruled Sale or Return Journal is maintained. Entries for goods sent ,
goods returned and goods approved are recorded in the same book. Entry for approved goods is
posted to the individual Debtors A/c and the total is posted to the credit of Sales A/c.
When the Business sends Goods numerously on sale or return :
When transactions are numerous, the seller keeps the following additional books
a ) Sale or Return Day Book and b ) Sale or Return Ledger .
The Ledger contains the accounts of the customers and the ‘Sale or Return’ A/c. Both these books
are Memorandum Books
The following entries are recorded in the Sale or Return Book
When goods are sent
Customer A/c Dr.
To Sale or Return A/c
When goods are approved / Returned
Sale or Return A/c-------Dr.
To Customer A/c
When the goods are approved entry for the same is made in the Sales Book
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4. Accounting for "Goods Sold on Approval" or " Sale or Return" Basis
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5. Accounting for "Goods Sold on Approval" or " Sale or Return" Basis
ck on the
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