Goods Sold on Approval Adjustment in Final Accounts
Arjun EP
Adjustments given below trial balance must be adjusted for final account.
Adjustment entry means not adjusted while preparing trial balance.
It is also known additional information.
Almost all the adjustment entry effects dual aspect.
One is debit and other is credit.
There are a number of adjustments to be made while finalizing the financial statements.
But our discussion will be limited to the following adjustments (limited by the curriculum):
Major Adjustments in Final Accounts
|
Closing stock Outstanding expenses Prepaid expenses Accrued income or income receivable Advance income or unearned income Depreciation on assets Appreciation on assets Written off or amortized Purchase or sale of fixed assets Bad debts, provision and discount Bad debts recovered |
Goods loss by fire and insurance claim Goods distribute as free sample Manager’s commission Bonus to employees and retirement benefit Create reserve (general reserve and capital reserve) Goods sold on sale or return basis Hidden adjustment: (a) Interest on loan or debenture (b) Interest on investment (c) Monthly rent and salary |
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Goods Sold on Approval Basis (Sales or Return Basis)
Sometimes when company is new or new product is launched, vender company can sales goods on sales or return basis.
This method is known on-approval.
Under this, method goods are distributed credit basis.
When goods are sold, money is paid; when goods are not sold it is returned to Vendor Company.
ADJUSTMENT: 17
Extracted Trial Balance
|
Particulars |
Debit |
Credit |
|
|
Sales Debtors |
− 150,000 |
800,000 |
|
Additional information:
Closing stock Rs 40,000
Goods cost value Rs 50,000 sold on sales or return basis for Rs 80,000.
Required: Show transaction in journal entry, trading account and balance sheet
Journal Entry
|
Date |
Particulars |
|
LF |
Amount |
Amount |
|
|
Sales account (sales value) Closing stock account (cost value) To Debtors account (sales value) To Trading account (cost value) (Being- closing stock recorded) |
Dr Dr
|
|
80,000 50,000 |
80,000 50,000 |
Trading Account
|
Particulars |
|
Amount |
Particulars |
|
Amount |
|
|
|
|
By Sales Less: Return Less: On-approval By Closing stock Add: On-approval |
800,000 Nil (80,000) 40,000 50,000 |
720,000
90,000
|
Balance Sheet
|
Liabilities |
|
Amount |
Assets |
|
Amount |
|
|
|
|
Current assets: Debtors Less: On-approval Closing stock Add: On-approval |
150,000 (80,000) 40,000 50,000
|
70,000
90,000 |
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