Learn On Your Own Accounting Entries For Goods Sent On Approval:

Business concerns extend numerous facilities to their customers with the object to increase sales. One such facility is "Goods Sold On Approval" wherein goods are delivered to the customers with the option to retain or return the same within a specified short period.

When the business sends goods with such an option it is generally called "Sale or Return". Under such facility, 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.

Accounting Journal Entries For Goods Sent On Approval:

1. When Goods Are Sent On Approval:

Sundry Debtors A/c---------------------Dr. (Invoice Price/Sales Price)

            To Sales A/c

(Being goods sent on approval recorded)

2. When Goods Are Returned Or Rejected:

Sales A/c---------------------Dr.(Invoice Price/Sales Price)

            To Sundry Debtors A/c

(Being goods sent on approval returned)

3. At The End Of The Financial Year When The Unapproved Goods Still Exist:

At the end of the accounting period should be included in closing stock at cost price or market price whichever is lower:

At the end of the financial year, if the goods sent on approval are still lying with the customer, the entry for sales made earlier is cancelled and the value of the goods with the customers treated as closing stock and is recorded in Trading Account.

i) For Cancellation Entry:

Sales A/c---------------------Dr. (Invoice Price/Sales Price)

            To Sundry Debtors A/c

(Being goods sent earlier on approval cancelled)

ii) For Recording into Closing Stock:

Stock with Customers on sale or Return A/c---------------------Dr..

            To Trading A/C

(Being the amount of stock with customer added to closing stock and recorded in Trading Account)


Accounting Treatment While Preparing Final Account:

In the Trading Account:

Goods Sent on Approval should be deducted (at selling cost) from sales and Should also be recorded in the credit side of the Trading Account "By Goods With Customers" (at cost price).

In the Balance Sheet:

While preparing Balance Sheet of the concern, it should be deducted (at selling Price) from Debtors and should also be recorded under the heading 'Currents Assets' as Goods With Customers (at cost price)