Sales returned next year

AS 7602 views 3 replies

llllVICTORllll

Internal Auditor

511 Points Joined May 2008

Hi All

This was a question asked to me earlier this year in an interview, and i still do not know 100% what the answer should exactly be

So here goes the question

Keeping matching concept of accounting in Mind

IF a company does a sale on say 29/3/2012, and the same item has been returned on 24/4/2012, to which year the sale return be accounted.

2011-12? if so then the date of sales return being next year will cause problem related to credit note the debtor will issue and also transaction cannot be accounted before it happens... right?

2012-13? if this then the matching concept of acccounting goes wrong, as it relates to transaction of previous year

or can we show the sales return as a prior period item, if so, then for a big company the single sales return might be too immaterial to show as prior period item in P &L

So what should be the treatment, explain with reason

Replies (3)

first you should know that the balance sheet should show the true and fair position of the business as on the date of closing of the books of accouts, so as on the last date of accounting year you have made only sales. that's all you know about the position of business. on that basis only you will prepare the p& l a/c and balance sheet.

and then on 24-04-2012 the sold goods will be returned right . so on that day only you will come to know that the sold goods. then how could you show the returns in the previous financial year. so the abviosly the returns shold presented in the current year,

with a proper note that the date of sales and date of return fo goods

then next thing is about the matching concept.

in the previous year you made sales and showed on the credit side of the p& l a/c and the closing stock will show the actual figure.

and when the sold goods have been returned you wiill deduct the sales return that will increases the closing stock of the business.

this is what as per me the matching concept of accounting...

K Vasu

Accountant

24 Points Joined September 2010

Hai,

we sold our goods worth Rs.25 Lacs in the OCT'13, but unfortunately due to some quality problems party returned the material in the same month. But our accounting people filed all the returns for the F.Y.2013-14 wihtout considering this sales returns. Please advice me can I take these sales returns in the F.Y.2014-15 and how computation of income will calculated.

Please reply me its very urgent.

Thanks

Mukund

Nil

36 Points Joined September 2009

According to Matching concept the materiality is very important.usually companies accounts are finalized in 60days or 30days time.The following are 3 things to be considered for you.

a) Excise & Sales Tax.

B) Income recognition,dealers/agents commission etc etc.

C) Presentation of financial statement for MIS,Incentive calculation for sales staff and yOY comparision between two periods.

Ideally you should refuse to recognize the sales of that transaction depending on the type of business you are into.It means you should not show this as sales,but in materiality concept if the returned material is 10%-15% of the sales of that month/year then you surely should reverse the sales.if it is small timing difference like say 1% etc etc & in previous year sales you have received back goods this year for quality complaint it will not have material impact.

You have to make some judgement here,depending on type of business you are in etc etc.