Goods Out on Approval

Goods out on approval are goods that are currently in the possession of a potential customer but have not yet been purchased by the customer. The customer physically has the product and has a stated period in which to decide either to purchase it or return it.Goods out on approval items should be included in the seller’s inventory at their original cost until either the customer accepts the goods or the time to return the goods expires. Only when either of these events occurs will the sale be recognized and the cost of the goods removed from the seller’s inventory and transferred to cost of goods sold. If instead the customer returns the goods, no transaction is necessary.