Coupon Accepted Successfully!


Ordinary Sale Method

This method is followed when there are very few transactions. Transactions here are treated as ordinary sale and entry for ordinary sale is passed when goods are sent for approval. If the stock is retained by the customer, no entry is passed as the sale is already recorded, but if goods are returned within a specified time limit, a reverse entry is passed to cancel the previous transaction. The journal entries are as follows:


If, at the end of the year, the goods are still lying with the customers and the specified time limit is yet to expire, the original entry for sales passed earlier must be cancelled and the value of the goods lying with the customers must be treated as ordinary stock lying with customers on behalf of the seller for the purpose of making the Balance Sheet (as per the principle of conservatism).



  • The stock which is lying with the customers on behalf of the seller should be valued at cost or net realisable value, whichever is lower
  • No entry is to be passed for the goods returned by the customers on a subsequent date (in the next financial year)


Illustration 1


A Ltd. sends goods to its customers on sale or return basis. The following transactions took place during 2011-12.

A Ltd. records sale or return transactions as ordinary sales.


You are required to pass the necessary journal entries in the books of A Ltd. assuming that the accounting year closes on 31st March, 2012.



No entry is required for receiving letter of approval from customer


Cost of goods with customers = Description: 36328.png 

Illustration 2


On 31st March, 2012, goods sold at a price of ₹ 6,000 were lying with customer X, to whom these goods were sold on ‘sale or return basis’ and recorded as actual sales. Since no consent has been received from X, you are required to pass adjustment entries presuming goods were sent on approval at a profit of cost plus 20%. The present market price is 10% less than the cost price.



Working note:


Calculation of cost and market price of stock with customer


Sale price of goods sent on approval = ₹ 6,000


Less: Profit (6,000 x 20/120) = ₹ 1,000


Therefore cost price of the goods sent = ₹ 5000 (6000-1000)


Market price = 5,000 - (5,000 x 10%) = ₹ 4,500

Test Your Skills Now!
Take a Quiz now
Reviewer Name