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In order to increase the sales and attract new customers or for introducing a new product in the market, goods are sent to customers with the option to retain or return them within a specified period. It only implies a change in the possession of goods and not a transfer of the ownership of goods.

The ownership is passed only when the customer gives his approval or if he does not return the goods within the specified time. In this chapter, we will deal with the accounting treatment of sale of goods on approval or return basis.

As per the definition given under the Sale of Goods Act, 1893, in respect of such goods, the sale will take place or the property in the goods passes to the buyer:

  • When he signifies his approval or acceptance to the seller
  • When he does some act adopting the transaction
  • If he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, on the expiry of the specified time (if a time has been fixed) or on the expiry of a reasonable time (if no time has been fixed)

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