When the transactions are few, the seller on sending the goods, treats them as an ordinary sale. If the goods are accepted or not returned or the business receives no intimation within the specified time limit, no extra entry is required to be passed because the transaction for sale or return becomes entry after the expiry of the specified period. If the goods are returned within a specified time limit, a reverse entry is passed to cancel the previous transaction. If, at the year-end, goods are still lying with the customers and the specified time limit is yet to expire, the entry for sales made earlier is cancelled and the value of the goods lying with the customers must be reduced from the selling price to the cost price, and treated as an ordinary stock for Balance Sheet purposes.             

Journal Entries:

1.         When goods are sent on approval or on sale or return basis

Sundry Debtors Account                                                                                                                                           Dr.       [Invoice price]

To Sales Account

2.         When goods are rejected or returned within the specified time

Sales/Return Inwards Account                                                                                                                                           Dr.       [Invoice price]

To Customers/Sundry Debtors Account

3         When goods are accepted at invoice price---      [No entry]

4         When goods are accepted at a higher price than invoice price

Sundry Debtors Account                                                                                            Dr.

To Sales Account                                                                                                                [Difference in price]

5         When goods are accepted at a lower price than the invoice price

Sales Account                                                                                                                 Dr.

To Sundry Debtors Account                                                                                                                [Difference in price]

6         (i)    At the year-end, when goods are lying with customers and the specified time limit is yet to expire

Sales Account                                                                                                                 Dr.       [Invoice price]

To Sundry Debtors Account

(ii)   These goods should be considered as stock with customers and in addition to the above, the following adjustment entry is to be passed

Stock with Customers on Sale or Return Account                                               Dr.

To Trading Account [Cost price or market price whichever is less]

No entry is to be passed for goods returned by the customers on a subsequent date.

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