Goods are sometimes sent to customers on an approval basis, where the customer can return the goods within a specified period. Ownership passes when the customer approves or keeps the goods past the period. When transactions are few, the seller treats them as regular sales but reverses the entry if goods are returned. At year-end, the value of goods still with customers is recorded as closing stock.

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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 Businesssends 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.
Q. 1: Solution
Journal
Date Particulars Ref. Debit (Rs) Credit (Rs)
1 DebtorsA/C (100 * 200)
To salesA/C
(goodssentonapproval bases)
20000
20000
2 SalesA/C (20 * 20)
To DebtorsA/C
( salescancelled for20 stovesforRs 20 each)
400
400
3 SalesA/C (80 * 200)
To DebtorsA/C
(Salescancelledfor80 stoves@ Rs 200 each)
16000
16000
4 Stock at CostA/C (80 * 150)
To TradingA/C
(closingstockrecordedatcost)
12000
12000

2. Part 4: Goods sent on approval bases M.COM FINAL
Arshad Islam; Contact No: 0092-313-9911865; E-Mail: arshad_mccm@yahoo.com Page 2
Q. 2: Solution
Journal
Date Particulars Ref. Debit (Rs) Credit (Rs)
1 DebtorsA/C (100 * 200)
To salesA/C
(goodssentonapproval bases)
20000
20000
2 DebtorsA/C (100 * 200)
To salesA/C
( salesincreasedfor20 stovesforRs 20 each)
400
400
3 SalesA/C (80 * 200)
To DebtorsA/C
(Salescancelledfor80 stoves@ Rs 200 each)
16000
16000
4 Stock at CostA/C (80 * 150)
To TradingA/C
(closingstockrecordedatcost)
12000
12000
Q. 3: Solution
Journal
Date Particulars Ref. Debit (Rs) Credit (Rs)
1 SalesA/C
To DebtorsA/C
(Salescancelled)
4000
4000
2 Stock at CostA/C {4000 – (4000* 25/125)}
To TradingA/C
(closingstockrecordedatcost)
3200
3200
Q. 4: Solution
Journal
Date Particulars Ref. Debit (Rs) Credit (Rs)
1 DebtorsA/C
To salesA/C
(goodssentonapproval bases)
6000
6000
2 SalesReturnedA/C
To DebtorsA/C
(GoodsReturnedfromDebtors)
2000
2000
3 SalesA/C
To DebtorsA/C
(Salescancelled)
2000
2000
4 Stock at CostA/C {2000 - (2000 * 20/100)}
To TradingA/C
(closingstockrecordedatcost)
1600
1600

3. Part 4: Goods sent on approval bases M.COM FINAL
Arshad Islam; Contact No: 0092-313-9911865; E-Mail: arshad_mccm@yahoo.com Page 3
Q. 5: Solution
In the Books of Messers Sound and Music
(i) Sales day Book
Date Account Debited Invoice No Ref Amount (Rs)
2002
March 10
15
20
27
28
ABC Co A/C
XYZ Co A/C
PQR Co A/C
XYZ Co A/C
PQR Co A/C
2600
3400
1900
2200
1700
31 Total 11800
(ii) Sales or Returned day Book
Date Particulars Sales (Rs) Returned (Rs)
2002
March 14
17
25
ABC Co A/C
XYZ Co A/C
PQR Co A/C
3400
1100
2600
800
31 Total 4500 3400
In the Books of Messers Sound and Music
Ledger Accounts
(i) Sale or Return (Approval) Account
Date Particulars Amount(Rs) Date Particulars Amount(Rs)
2002
March 31
To SalesReturn:
ABC Co A/C
PQR Co A/C
To Sales:
XYZ Co A/C
PQR Co A/C
To Balance c/d
2600
800
3400
1100
3900
2002
March 10
15
20
27
28
By ABC CoA/C
By XYZ Co A/C
By PQR A/C
By XYZ Co A/C
By PQR A/C
2600
3400
1900
2200
1700
Total 11800 Total 11800
(ii) ABC Co Account
Date Particulars Amount(Rs) Date Particulars Amount(Rs)
2002
March 10 To Sales 2600
2002
March 14 By SalesReturnA/C 2600
Total 2600 Total 2600

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(iii) XYZ Co Account
Date Particulars Amount(Rs) Date Particulars Amount(Rs)
2002
March 15
27
To Sales
To Sales
3400
2200
2002
March 31 By SalesA/C
By Balance c/d
2200
3400
Total 5600 Total 5600
(iv) PQR Co Account
Date Particulars Amount(Rs) Date Particulars Amount(Rs)
2002
March 20
28
To Sales
To Sales
1900
1700
2002
March 25
31
By SalesReturnA/C
By SalesA/C
By Balance c/d
800
1700
1100
Total 3600 Total 3600
Q. 6: Solution
In the Books of.............
Ledger Accounts
(i) Sale or Return (Approval) Account
Date Particulars Amount(Rs) Date Particulars Amount(Rs)
2002
April 30
To SalesReturn:
A A/C
C A/C
To Sales:
B A/C
D A/C
E A/C
To Balance c/d
10000
25000
18000
8000
21000
30000
2002
April 2
4
16
20
24
28
By A A/C
By B A/C
By C A/C
By D A/C
By E A/C
By F A/C
10000
18000
25000
8000
21000
30000
Total 112000 Total 11800
(ii) A Account
Date Particulars Amount(Rs) Date Particulars Amount(Rs)
2002
April 2 To Salesor ReturnA/C 10000
2002
April 30 By Salesor ReturnA/C 10000
Total 10000 Total 10000

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(ii) B Account
Date Particulars Amount(Rs) Date Particulars Amount(Rs)
2002
April 4 To Salesor ReturnA/C 18000
2002
April 30 By Salesor ReturnA/C 18000
Total 18000 Total 18000
(iii) C Account
Date Particulars Amount(Rs) Date Particulars Amount(Rs)
2002
April 16 To Salesor ReturnA/C 25000
2002
April 30 By Salesor ReturnA/C 25000
Total 25000 Total 25000
(iv) D Account
Date Particulars Amount(Rs) Date Particulars Amount(Rs)
2002
April 20 To Salesor ReturnA/C 8000
2002
April 30 By Salesor ReturnA/C 8000
Total 8000 Total 8000
(v) E Account
Date Particulars Amount(Rs) Date Particulars Amount(Rs)
2002
April 24 To Salesor ReturnA/C 21000
2002
April 30 By Salesor ReturnA/C 21000
Total 21000 Total 21000
(vi) F Account
Date Particulars Amount(Rs) Date Particulars Amount(Rs)
2002
April 28 To Sales or ReturnA/C 30000
2002
April 30 By Balance c/d 30000
Total 30000 Total 30000