Vouching of Goods Received on Sale or Return Basis or Consignment Basis – Guidelines to Auditor
Sometimes, goods are received from the suppliers on sale or return basis. Such goods shall not be treated as purchase until the receiver decides to purchase them.
Likewise, goods received on consignment basis also shall not be treated as purchase unless the receiver decides to purchase them. Unless and until the receiver agreed that such goods to be treated as purchase, no entry in the books of account should be made for such goods.
Goods Received on consignment basis should be kept separately in the stores and should not be mixed up with other goods. Closing stock shall not include them. Records for such goods should be maintained in separate Memoranda Book. The auditor should see whether these items are treated so.
Vouching of Goods Sold on Sale or Return Basis – Audit Procedure, Guidelines to Auditor
Sometimes goods are sold on sale or return basis. Under this type of sale, goods are sold to customers on condition that if the customers do not approve them, they can return them within a stipulated period.
Until the customer approves the goods they cannot be treated as sales. At the closing of the business, it may so happen that some goods rest with customers who have not sent their approval. In such a case these goods cannot be treated as sales.
Such goods must be shown as “Goods with Customers” and deducted from sales and from the list of debtors on the period under audit. The auditor should see that whether the customers have approved such goods otherwise profit would be inflated.
The unapproved goods by the customer at the time of Balance Sheet should be shown on the assets side of the Balance Sheet as “Goods with Customers”.
If such transactions are numerous, the auditor should recommend to use “Goods on Sale or Return Journal” in order to avoid any confusion between such sales and credit sales. The auditor should vouch journal with any documentary evidence like correspondence, invoice, etc., which may be available.
Vouching of Goods Sent on consignment – Guidelines to Auditor
If goods are sent on consignment, a separate book known as “Consignments Outward Journal” should be prepared. This book should be vouched with the copies of agreement, account sale, correspondence, and proforma invoice. When Goods were sent on consignment at a higher price, proper adjustments should be made at the time of finding the profit or loss.
The unsold goods with the consignee should not be treated as sales. They should be included in stock and shown in the balance sheet as “Goods on Consignment“. Such goods lying with consignee should be valued either at market price or at cost price whichever is lower plus proportional expenses incurred on consignment.