Multiple choice

Varun Ltd. sends goods to his customers on sale or return recording it as a sale at the time of sending it for approval. During 2006, Varun Ltd. send goods to customers for Rs. 1,00,000 on sale or return basis, at cost plus 33.33%. On September 2006. a letter of approval was received from a customer for Rs. 40,000. In this respect, entry will be

  1. debtors account debited and sales account credited with Rs. 40,000.

  2. sales account debited and debtors account credited with Rs. 40,000.

  3. no entry is required for receiving the letter of approval from the customer.

  4. entry will be made at the end of the year.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When Varun Ltd. records the transaction as a sale at the time of sending goods (cost plus 33.33%), the accounting entry is already passed: Debtors A/c Dr. Rs. 1,00,000 to Sales A/c Rs. 1,00,000. When approval letter is received, no additional entry is required because the sale was already recorded at dispatch. Approval only confirms the customer has no intention to return goods.

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