sale or return basis

[irfan kazim]

AOA,
What is the different between simple sale and the sale or return basis. Please explain fully with journal entries. Accounting period is 11-12-92 to 31-12-92

For example,
goods with customers on sale or return basis were 50,000(proforma invioce value) The goods had been sent on 9-12--92, the customer has right to return the goods during four weeks but it was known that on customer who had goods worth 20000 had pledge them with a bank.What will be the journal entries in both the accounting period Does sale or return bais includ in the sale which is given in the question.

[URDanka]

Idea is simple..

If there's an arrangement where an item could be returned after it's sale, depending upon the value of that item, a provision of sorts will be made to account for any, sales return made after it's sale.

Usually, a seller will record a sale as it is.. For Example
DR Cash
CR Sales of Goods

but in case where return is made possible, he'll make Allowance for Sales returns based on %age of total sales for a year at yearend for next year based upon normal Return trends upon sales volume and ect.

DR PnL
CR Sales Allowance

Any amount that remains outstanding even after the provision will be adjusted through that year's PNL and provision will be adjusted accordingly.

When a customer pledges goods with bank, it means that he is securing those goods as collateral to bank for advances. If there is such a case, I believe there won't be any change in entries from seller's point of view. Because, as long as you have made the sale in on cash basis and not credit basis, it wouldn't matter. However if the sales was made on credit basis, Bank should be notified in that regards. That the customer concerned has yet to pay you for the goods bank has in pledge. Ofcourse this works differently for L/Cs and Export credits. But still you get the point ^_^

[irfan kazim]

Brother, solve the example in both purchaser and seller books.

[URDanka]

hmm..

Seller Books will prolly be

DR Cash
CR Sales

Purchaser
DR Asset
CR Cash

when purchaser pledges the goods..
one of two entries will occur depending upon his contract with the bank

Either

DR Cash
CR Accounts Payable

or Sale and leaseback of the asset (forming a loan situation)
DR Cash
CR Asset

then lease entries will occur
DR Asset
CR Accounts Payable (leaseback)

One of two entries will occur depending upon the type of pledge and who has it's custody.

[tahsin]

salam bai jan, "sale on return basis" the salae are return bsais is type of sale in which an option is given to the customer that the can return the goods up certain time like in ur example which is four weeks.

[tahsin]

dear by mistak i send the reply,becouse i do not know more about computer,so i am sorry, now i am going to give you the accounting treatment of this example.
the seller will record this sale when the specific time is laps or formally inform by the customer that he accept the goods. Dr debtor Cr sale the perchaser will record this perchase when invoice is recieved.Dr perchase Cr creditor the plegde have no effect on the timming of the transaction.