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In October 2006 Utland sold some goods on sale or return terms for $2,500. Their cost to Utland was
$1,500. The transaction has been treated as a credit sale in Utland’s financial statements for the year
ended 31 October 2006. In November 2006 the customer accepted half of the goods and returned the
other half in good condition.
What adjustments, if any, should be made to the financial statements?
A Sales and receivables should be reduced by $2,500, and closing inventory increased by $1,500.
B Sales and receivables should be reduced by $1,250, and closing inventory increased by $750.
C Sales and receivables should be reduced by $2,500, with no adjustment to closing inventory.
D No adjustment is necessaryA
As at 31 October nothing had been heard from the customer, so no sale had been made.
(I assume that you wanted me to answer the question – you didn’t say!)
oh sorry sir, i wanted u to answer this ques,, hmm I did not understand your reply. can you plz explain
When goods are sold on sale or return, there has been no sale until we hear from the customer. We did not hear from the customer until after 31 October.
So at 31 October there had been no sale (so the sale needs removing), and the goods still belong to Uttland (so inventory needs increasing).
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