Goods Sent to Customers on Sale or Return (Approval) Basis:
When goods are sent on a “sale or return” or on “approval” basis, these goods are not treated as sales unless they are approved (purchased) by the customer. However if at the inventory count date, these goods are held by its customers without approval then they are taken as unsold goods. In that case, they are included in the seller’s inventory valuation but not in the figure for sales.
Goods Received on Sale or Return (Approval) Basis:
Sometimes goods may be received from a supplier on a sale or return (approval) basis. Its typical example is receipt of newspapers by a book shop from newsagents. They are normally received with the condition that they can be returned back if they are not sold. This means that the goods on “sale or return” belonging to the seller until they are sold.
As a result, if goods received on “approval” are held by a business at the end of the accounting period, they should not be included in the business’ inventory valuation, nor in the figure for purchases.