Goods Sent Casually: Accounting Treatment

The goods when they are sold to the customer, they are immediately treated as sales and the revenue is recognized therein. However, when the goods are sold on approval basis or return basis, then the accounting treatment will be different. The sale is then recorded only when the goods are approved by the buyer, these are the goods which are sent casually. Now we will discuss the treatment for Goods that are sent casually in our prevailing section. We will know the details about the concept vividly.

Understanding the Concept

The goods when are sent casually, include a few transactions, the goods that are sent on approval or on return basis are treated as ordinary sales by the side of the seller. In a specified time limit the goods are required to be accepted and if they are not returned then no entry will be passed in that regard. We will treat the goods as sold for which the entry is being passed before. While, if the goods are being rejected or returned or no intimation is received within the specified time limit, then the entry to reverse the sales is required to be passed.

Apart from this, if the goods are still lying with the buyer or the receiver of the goods at the end of the accounting year and the specified time limit is set to expire, then they are treated as closing stock. The entry for sales that are made earlier is cancelled and then they are recorded at the cost price. When the goods are returned by the customer after a specified time limit then no entry is passed.

Treatment for Goods Sent Casually

The journal entries for the goods that are sent casually are required to be entered to facilitate the company in a process which will be useful to them. The basic journal entries used for the recording purpose are as follows:

1. The Goods Sent on Approval

Debtors A/C………. Dr

To Sales A/C 

(bring goods that are sent on approval)

2. Goods When Accepted at the Invoice Price.

No entry.

3. When Goods are Accepted at a Price Which is Higher than the Invoice Price

Debtors A/C………… Dr

To Sales A/C 

(The difference of the sale price is recorded)

4. When Goods are Accepted at a Price Which is Lower than the Invoice Price

Sales A/C……… Dr

To Debtors A/C

(The difference in the sale price recorded)

5. Goods Which are Rejected or Returned Within the Specified Time Limit

Sales A/C………. Dr

To Debtors A/C

(Goods which are recorded as sales is now reversed)

6. The Specified Time Limit is Yet to Expire and the Goods are Lying with the Customers on Year End

Sales A/C………. Dr

To Debtors A/C

(Entry of sales made earlier and reversed at the invoice price)

7. The Goods Sent on Approval or on Return Basis as the Closing Stock

Goods sent on Approval A/C…. Dr

To Trading A/C

(Goods are sent on approval and are recorded as closing stock at cost or at market price whichever is lower)

Goods Sent on Approval Basis before (GST)

Goods Sent on Approval Basis Returned within 6 months from the GST being implemented 

The goods being sent on approval for a maximum six months before the appointed day are rejected and returned to the seller on or after the 1st July then nil tax will be payable. The goods should be returned within these six months from the appointed day

The period of 6 months is to be extended for a maximum of 2 months if only there is sufficient cause.

If the Goods Are Returned after 6 months

GST is to be paid by the person who is returning the goods, meaning the buyer after 6 months if those goods are liable to tax under the GST Act

The seller is required to pay GST on the goods returned after the 6 months.