CPT Chapter Sale of Goods on Approval or Return basis

CA CPT syllabus “Sale on Approval or Return basis” explains why a business adopts a policy of sale on approval or return basis and the different methods of passing accounting entries depending on whether such transactions are occasional, frequent and numerous.

With Sheela Warrier.Duration:1hrs 37min

Notes

Few things covered by us:

Sale of Goods on Approval or Return Basis

Meaning
Why are goods sold on approval or return basis
Accounting records
a) In case of occasional sale or return
b) In case of frequent sale or return
c) In case of numerous sale or return transactions

Meaning

Goods sold on approval or return basis refers to goods delivered to customers who have an option to retain or return them within a specified period.

Meaning

Sale will be recognized only when:

buyer approves the goods
buyer indicates in some way that he has accepted the sale
buyer does not return the goods within specified period

Why are Goods Sold on Approval or Return Basis

to boost sales
to introduce a new product
to capture a larger share of the market

Accounting records (occasional transactions)

When goods are sent on approval basis
When goods are returned
When goods are approved
If there are negotiations on pricing
When goods are neither approved nor
returned at the year end

Accounting (frequent transactions)

Sale or Return (Goods on Approval) Day Book
Sale or Return Ledger
Total Sale or Return account
Individual Customer’s accounts
Entries in General Ledger / Debtors Ledger only on Sale

Memorandum Books

Not a part of Financial Books
Not a part of Accounts

Few examples are below-
Under sales on approval or return basis, the ownership of goods is passed only:
(a) when the customer gives his approval
(b) if the goods are not returned within specified period.
(c) Both (a) and (b)
(d) None of the above

Under sales on return or approval basis, when transactions are few, the seller, while sending the goods, treats them as
(a) an ordinary sale but no entry is passed in the books
(b) an ordinary sale and entry for normal sale is passed in the books
(c) Approval sale and no entry is passed
(d) None of the above

Under sales on return or approval basis, when transactions are few and the seller at the end of the accounting year reverses the sale entry, then what will be the accounting treatment for the goods returned by the customers on a subsequent date?

(a) No entry will be passed for such return of goods
(b) Entry for return of goods is passed by the seller
(c) Only the stock account will be adjusted
(d) None of the above

What is the objective behind selling goods on approval basis :
(a) For introducing a new product is the market
(b) For pushing up sales
(c) To capture a larger share in the market
(d) All of these

Sale or Return Day Book and Sale or Return Ledger are known as:
(a) Subsidiary books
(b) Principal books
(c) Memorandum books
(d) Both (a) and (c)

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