'x' firm sells goods to 'y' . and record it as sales. but 'y' cancel the bill and return it back without entering purchase in its books of accounts.
on receipt of bill 'x' record it as sales return.
now question is
being the auditor of x and y firm , wat would be your comment . does 'y' firm commited mistake by not recording purchses and purchase return
will IT dept raise any question in both the firm s books accounts
will your ans differ if x andy are sister concern 
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sales and sales return
Replies (5)
It would depend upon the contract between the parties.
AS-9 is to be looked upon in this case which contemplates revenue should be regonised when significant risks and rewards are transferred.
In case of sister concerns, the risk that transactions are sham and bogus is more than usual.
X has recorded the transaction as Sales and Sales return. It is not necessary for Y to record the transaction as purchases or purchase return, since Y has not acknowledged it.
No transaction has taken place X & Y. In this case, X has made a mistake of generating the invoice and has corrected it by booking the sales return.
The net debit & crdit to the P & L remain the same. Hence no problem even to the auditor
It is for this reason that the income tax years have been kept uniform for all assessees as In case of sister concerns, these transactions were although sham and bogus wer accounted in the above manner.
It is like you should account for a bounced cheque or not.
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