Sale
on Approval
By Asok Nadhani
20.1 Sale on Approval
In some trade (like Books,
fashion items) it is usual practice to sell the goods to the customers with the
option to return within a specified time (or a reasonable time) if not
accepted. It is not a sale, but simply transfer of possession of goods to
customer. It becomes a transaction of sale only when the customer approves the
goods or retains the goods beyond the specified time (or a reasonable time). This
type of sale is known as “Sale Sale
20.2 Accounting Procedure of Sale on Approval
There are three Accounting
Procedure for recording transaction of sale on return or approval basis.
1.
Casual transaction or where transactions are occasional.
2.
Considerable number of transaction but not on
regular basis.
3.
Large number of transactions on regular basis.
20.2.1 Casual or Occasional transactions
When goods are sold on
return or approval basis occasionally, there is no need to have separate books
of account for such transactions, and the following journal entry should be
passed:
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i)
On supply of goods.
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Debtors A/c
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Dr.
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To Sales A/c.
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ii)
On receipts or acceptance of goods.
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No accounting entry
passed as the sale has been accounted for initially.
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iii)
On return of goods.
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Sales A/c
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Dr.
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To Debtors
A/c.
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iv)
When the customer’s approval is still awaited at
the end of the year.
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(a)
Sales A/c
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Dr.
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To Debtors
A/c.
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(b)
Stock with Customers A/c
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Dr.
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To Trading
A/c. (Cost Price)
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Example
1: A merchant casually sells goods on “Sale 31st December, 2009 ; if
consent of Mr. X is pending? On this date, Stock in hand Rs.50,000 and Sundry
Debtors stood Rs.1,00,000. Show the effect on Balance Sheet.
Solution:
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Calculation
of sale value of goods
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Cost of goods
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Rs.
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10,000
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Add: Profit 25% of
Rs.10,000
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Rs.
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2,500
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Rs.
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12,500
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Journal
Entries
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Date
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Particulars
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Dr. (Rs.)
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Cr. (Rs.)
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31.12.2009
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Sales A/c
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Dr.
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12,500
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To Mr. X A/c.
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12,500
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(The cancellation of entry
for sale made on dispatch of goods on approval basis)
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Stock with Customers A/c
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Dr.
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10,000
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To Trading A/c.
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10,000
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(Cost of goods on approval
recorded as stock)
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Balance
Sheet (Extracts) as on 31.12.2009
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Liabilities
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Assets
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Rs.
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Rs.
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Sundry Debtors
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1,00,000
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Less: Debtors on approval
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12,500
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87,500
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Stock in hand
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50,000
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Add: Stock on approval
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10,000
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60,000
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20.2.2 Considerable transaction (but not large)
Under such circumstances, a
separate book called “Sales or return day book”, is used where a memorandum
record is maintained. It is divided into 4 parts. This specimen is as follows–
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Goods sent on Approval
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Goods Approved
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Goods Returned
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Balance
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Date
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Particulars
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Amt.
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Date
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Particulars
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Amt.
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Date
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Particulars
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Amt.
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Particulars
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Amt.
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a.
When goods are sold on approval basis- It is
recorded in the 1st column but no entry is made in the main books.
b.
When goods are approved by customers- It is
recorded in the 2nd column as sale entry.
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Debtors A/c
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Dr.
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To Sales A/c.
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c.
If goods sent under approval are retuned by
customers- It is recorded in the 3rd column but no entry is made in
the main books.
d.
If stock lying with the customer pending approval-
It is recorded in the 4th column, and entry is made in the books for
adjustment of stock with customer at cost price.
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Goods with Debtors A/c
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Dr.
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To Trading A/c.
(Cost Price)
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Example 2:
A Ltd. send out goods on ‘Sale Sale
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2009
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2009
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April.
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Rs.
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April.
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3
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C & Co. Ltd.
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15,000
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8
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Returned
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17
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D & Co. Ltd.
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20,000
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21
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Approved
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21
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C & Co. Ltd.
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21,000
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26
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Returned
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29
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C & Co. Ltd.
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25,000
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No intimation received as
to approval and goods not yet returned.
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(I.C.W.A,
Adapted)
Solution:
Books
of A Ltd.
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Goods sent on Approval
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Goods Approved
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Goods Returned
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Balance
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Date
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Particulars
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Amt.
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Date
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Particulars
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Amt.
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Date
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Particulars
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Amt.
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Particulars
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Amt.
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2009
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2009
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2009
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April
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April
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April
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3
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C & Co. Ltd.
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15,000
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21
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D & Co. Ltd.
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20,000
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8
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C & Co. Ltd.
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15,000
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17
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D & Co. Ltd.
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20,000
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26
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C & Co. Ltd.
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21,000
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21
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C & Co. Ltd.
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21,000
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C & Co. Ltd.
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25,000
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29
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C & Co. Ltd.
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25,000
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81,000
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20,000
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36,000
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25,000
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20.2.3
Regular transactions on sales or return basis
When the transactions for sale of goods are regular,
following set of books are maintained:
i)
Sale
ii)
Approval Returns Day Book.
iii)
Sale Sale
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Date
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Invoice No.
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Name of Customers
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L.F.
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Amount (1)
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This Book is just as the Sales Book. When the
sale of goods is on approval basis, they are recorded in this book. This figure
is posted in Deliveries Column (Col. 1) of sale Ledger of the customer.
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Date
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Name of Customers
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L.F.
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Returned (Rs.) (2)
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Retained (Rs.) (3)
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The goods which are
retained and returned by the customers out of the goods sent on approval basis
are recorded in this book. An Accounting record of sale is made in the books
for the value of goods retained (Col. 3)
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Deliveries (1)
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Returns (2)
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Sales (3)
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Balance (4)
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Date
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Particulars
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Amt.
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Date
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Particulars
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Amt.
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Date
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Particulars
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Amt.
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Date
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Amt.
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No entry in financial
Books.
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No entry in financial
Books.
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To be recorded as sales
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To be treated as Stock.
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An entry for Balance Sheet
lying with customer is adjusted in Stock-in-Hand.
The Particulars of Goods
return (Col. 2) is posted in Returns Column (Col. 2) of Sale
The Particulars of Goods
Retained (Col. 3) is posted in Sale Col. (Col. 3) of Sale
Example 3:
‘X’ supplied goods on sale or return basis to customers, the particulars
of which are as under:
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Date of Dispatch
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Party’s Name
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Amount
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Remarks
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10.12.2002
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ABC Co.
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10,000
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No information till
31.12.2002
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12.12.2002
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DEF Co.
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15,000
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Returned on 16.12.2002
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15.12.2002
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GHI Co.
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12,000
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Goods worth Rs.2,000
Returned on 20.12.2002
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20.12.202
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Def Co.
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16,000
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Goods Retained on
24.12.2002
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25.12.2002
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ABC Co.
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11,000
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Goods Retained on
28.12.2002
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30.12.2002
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GHI Co.
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13,000
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No information till
31.12.2002
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Goods are to be returned
within 15 days from the date of dispatch, failing which it will be treated as
sales. The books of ‘x’ are closed on the 31st December, 2002 .
Prepare the following
account in the book of ‘X’:
(i)
Goods on Sales or Return, Sold and Returned Day
Books.
(ii)
Goods on Sales or Return Total Account.
(CA-
PE- I, 2003 – May)
Solution:
In
the Books of ‘X’
Goods
on Sales or Return, Sold and Returned day Book.
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Date (2002)
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Party to whom goods sent
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L.F.
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Amount (Rs.)
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Date (2002)
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Sold (Rs.)
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Returned (Rs.)
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Dec. 10
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M/s ABC Co.
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10,000
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Dec, 25
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10,000
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-
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Dec. 12
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M/s DEF Co.
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15,000
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Dec, 16
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-
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15,000
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Dec. 15
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M/s GHI Co.
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12,000
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Dec, 20
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10,000
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2,000
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Dec. 20
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M/s DEF Co.
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16,000
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Dec, 24
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16,000
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-
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Dec. 25
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M/s ABC Co.
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11,000
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Dec, 28
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11,000
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-
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Dec. 30
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M/s GHI Co.
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13,000
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-
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-
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-
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77,000
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47,000
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17,000
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Goods
o Sales or Return Total Account
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Date (2002)
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Particulars
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Amount
(Rs.)
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Date (2002)
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Particulars
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Amount
(Rs.)
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To Returns
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17,000
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Dec. 31
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By Goods sent on sales or Return
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77,000
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To Sales
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47,000
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To Balance c/d
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13,000
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77,000
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77,000
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