Sale of items might be made on a sale or return basis. This sale ought to not be tape-recorded as a real sale till the client provides his approval of approval. In case the items sent out to clients have actually been tape-recorded as a real sale, a changing entry needs to be passed to nullify the result that has actually occurred i.e. it will be tape-recorded as a stock lying with the clients at the end of the year.
Modification:
A. If Sale of Product on Sale or Return Basis is provided outside the trial balance
In such a case, the list below results will happen:
- Deducted from Sales A/c in the Cr. Side of the Trading A/c. [At Selling Price]
- Deducted from Debtors on the Assets side of the Balance Sheet. [At Selling Price]
- Contributed To Closing Stock in the Cr. side of the Trading A/c. [At Cost Price]
- Contributed To Closing Stock in the Assets side of the Balance Sheet. [At Cost Price]
Illustration:
Following is the trial balance of Mr. Rajan.
The following modifications were kept in mind:
- Product to be utilized in company amounting to 10,000.
- The supervisor is entitled to commission @ 10% on net earnings prior to charging such commission.
- Out of the overall Ad expense sustained, just 4,000 comes from the existing year.
- Product are sent out to clients on a sale or return basis at expense plus 25% earnings, the expense is 10,000.
- Product in transit expenses 2,000.
- Closing stock 4,500 to be taken into consideration.
Prepare Trading A/c, P & & L A/c, and Balance sheet.
Service:
Note: Contingent Liability will not be taken into consideration in the Balance sheet. It will be displayed in Notes to Account.
Working Notes:
1. Estimation of Supervisor’s Commission
Supervisor’s Commission = 