Sale or return is a term sale, where the seller sold goods on the basis of return, there might be a chance of return of goods, or acceptance of goods, or acceptance of part of goods. This method is also called the Sale on Approval basis.

When the transactions of sending the goods on sale or return basis are few, the seller may treat it as normal sale and record it in the books accordingly. However, if the goods are sent on sale or return basis, the unsold goods must be included in the inventory at cost. When the goods sent on sale or approval basis are treated as sale, for the goods not yet approved, the sale entry is reversed at the year end.

Here Included in the sales were sale of goods of Rs. 5,000 on “Sale on approval” basis for which consent of the customer was not received upto Dec. 31st. Thus this entry will be reversed and the amount will be included in inventory at cost.

Here inventory at sale price = Rs. 5,000
Cost + 25% of cost = 5,000
Or
125% of cost = 5,000
Inventory on approval will be = Cost = 5,000/125% = Rs. 4,000

Expenses which have been incurred but not been paid for till the end of the accounting year are known as Accrued expenses or outstanding expenses.
Here the interest on loan due = 9% of 10,000 = Rs. 900
Interest on loan paid = 600
Thus Outstanding interest on loan will be Rs. 300

Claim for compensation under dispute is contingent liability.

The provision for doubtful debts is identical to the allowance for doubtful accounts. The provision is the estimated amount of bad debt that will arise from accounts receivable that have been issued but not yet collected. The provision is used under accrual basis accounting, so that an expense is recognized for probable bad debts.

In accounting, provision for discount on trade receivables shows the reserve amount for adjusting loss due to discount allowed to our trade receivables. Every businessman wants to get money faster from their customer. So, businessman accepts less money than actual from those customers who will pay before maturity of debt. So, at the end of year, we make provision for next year losses due to discount allowed. So, these provision will be called provision for discount on trade receivables.
Here Trade receivables = 30,000
Less:provision for bad debts = 5% of 30,000 = 1,500
= 28,500
So provision for discount on trade receivables = 2% of 28,500 = Rs. 570.

income tax paid on behalf of the proprietor will b e treated as drawings and will be deducted from the capital of the proprietor.
Here Capital 50,000 Income tax paid 10,000 and Income tax advance payment is Rs. 1,600.
So Capital A/c balance will be = 50,000 – 10,000 – 1,600 = Rs. 38,400.

Net profit is calculated by subtracting a company’s total expenses from total revenue, thus showing what the company has earned (or lost) in a given period of time (usually one year) also called net income or net earnings.

Here net profit = gross profit – salaries – interest on overdraft – office expenses – rent paid – general expenses – advertisement + commission received = 35,000 – 4,000 – 200 – 5,000 – 2,000 – 5,100 – 5,000 + 4,000 = Rs. 17,700.

Gross profit is a company’s revenue minus its cost of goods sold. Gross profit is a company’s residual profit after selling a product or service and deducting the cost associated with its production and sale.
Cost of goods sold is the direct costs attributable to the production or purchase of the goods sold by a company. It excludes indirect expenses such as distribution costs and sales force cost.
Cost of goods sold = opening inventory + purchases – closing inventory = 19,000
Gross Profit = sales – cost of goods sold = 30,000 – 19,000 = Rs. 11,000

Shares of private companies are not listed in any stock exchange. Shares of public companies are listed.

If the partners don’t wish to change values of assets and liabilities in the new balance sheet, they open memorandum revaluation account.