ASSAM ROJGAR SAMACHAR

Monday, October 10, 2011

Goods Sent on Sale of Return Basis


Introduction:
Goods sent on “approval” or  “sale of return basis” means the the delivery of the goods to the customers with the option to retain or return the goods within a specified period of time. It implies only a change in the possession of goods and not a transfer of the ownership of goods. The ownership is passed only when only the buyer gives his approval or if the goods are not returned within the specified period of time.

As per sale of goods act 1893, sale will take place or the ownership passes to the buyer:
(i)         When the buyer gives his approval to the seller;
(ii)       When he does some act adopting the transaction;
(iii)      When he does not give his approval with the specified period.

Accounting Records:
Accounting entries for “goods sent on sale of approval” basis depend on the fact whether the business sends goods
(i)         Casually;
(ii)       Frequently;
(iii)      Numerously.

An overview of the accounting treatment for the goods sent on sale or approval basis can be understand with the help of the chart given below:

When the Business Sends Goods Casually on Sale or Return Basis:
When the transactions are few, the seller on sending the goods, treats them as as ordinary sale. The following Journal Entries
when goods are casually sent on sale or return basis:
1. When goods are sent
Sundry Debtors A/C                               Dr.  (Invoice Price)
    To Sales A/C
2. When goods are rejected or returned within the specified time
Sales Return A/C                                     Dr.
    To Sundry Debtors A/C
3. When goods are accepted at invoice price 
               No Entry
4. When goods are accepted at higher price 
                Sundry Debtors A/C                               Dr.
         To Sales A/C (Difference In Price)
5. When goods are accepted at lower price
Sales A/C                                            Dr.
         To Sundry Debtors A/C
6. Time is yet to expire but goods are still lying with the costumers at the year-end
 i. Sales A/C                                             Dr.
        To Debtors A/C

ii. Stock with Customers on Sale or Return A/C            Dr.
        To Trading A/C (Cost Price)
Note- No entry is passed for the goods returned on a subsequent date.

When the Business Sends goods frequently sent on sale or return basis:
In this case no entry for sale is passed at the time when goods are sent. But a sale or return day book is maintained in which goods are recorded. This day book is divided into 4 main columns – (i) Goods sent on Approval; (ii) Goods returned; (iii) Goods Approved ; and (iv) Balance.

Entry for sale is passed only when goods are accepted and no entry is passed for goods returned.
Journal Entries:
(i)                  At the time of approval
Sundry Debtors A/C                                        Dr.
                                To Sales A/C
(ii)                At the time of Preparation of final Accounts, journal entry for balance of goods lying with customer
Stock with customer on sale or return A/C Dr.
                                To trading A/C   (Cost or market price whichever is lower)

When the Business Sends goods Numerously sent on sale or return basis:
In this case the business maintains the following Memorandum books:
(a)    Sale or Return Day Book; and
(b)   Sale or Return Ledger.
In this case, When goods are sent to the customers on a sale or return basis, they are recorded in the sale or return day book. Thereafter, in the sale or return ledger, all the customers are individually debited and the sale or return account is credited with the periodical total of the sale or return day book. These books are only memorandum and hence cannot find a place in the regular books.
Entry for sale in regular books is passed only when goods are accepted by customers or no intimation is received within the specified time.

Journal Entries:
(i)         At the time of approval
Sundry Debtors A/C                                              Dr.
                                To Sales A/C
(ii)       At the time of Preparation of final Accounts, journal entry for balance of goods lying with customer
Stock with customer on sale or return A/C Dr.
                                To trading A/C   (Cost or market price whichever is lower)