Amazon to QuickBooks Online Accounting: Handling Refunds and Returns
Dealing with refunds and returns on Amazon is a fairly straightforward process. If you’re using FBA, then it’s a hands-off process unless something goes wrong. But refunds and returns can quickly turn into a big mess in QuickBooks Online if you’re not careful.
Whatever method you use, it’s important that you’re consistent. For example, FBA sellers may use sales receipts, while FBM sellers may use invoices. They’re similar in that they ultimately record a sale and adjust accounts accordingly. Sellers who do both may mix and match, but doing so may make tracking certain transactions difficult.
In this article, we’ll go over how you can process Amazon refunds in QuickBooks Online. We’ll look at the different scenarios for Amazon refunds and returns, and we’ll see how to create the proper documents in QuickBooks to keep your accounts and reports accurate.
- What happens with a QuickBooks Online Refund Receipt
- Creating a QuickBooks Online Refund Receipt
- What to do if Amazon refunds a customer who hasn’t yet returned the product
- What to do if the customer eventually returns the product and it’s sellable
- If the customer returns a product and it’s too damaged to sell, including fraudulent returns
- If the customer returns a product and it’s used, but sellable
- What to do if Amazon reimburses you for a failed customer return
- Sample Inventory Report showing Refunds, Sales Receipts, and Credit Memos
- Other articles in our Amazon to QuickBooks Online Accounting Series
When you create a refund receipt in QuickBooks Online, inventory is automatically increased by the quantity in the refund document. This makes it difficult for sellers who use QuickBooks Online to track inventory since many returns on Amazon aren’t quite resellable. What’s worse, customers don’t return the item, return the wrong item, or they return junk. We’ll go over what to do with these instances below.
Here’s a sample Amazon invoice. You should already have service items created. If not, visit our article on how to create QuickBooks Online invoices and service items. Here’s a sample Amazon refund with the detailed charges.
To create the corresponding QuickBooks Online refund, click on the + icon on the top right of the screen and Refund Receipt.
While Amazon has the amounts as a negative, with the referral fee a positive number, we have to reverse that since we’re creating a refund receipt. That’s because the refund receipt already debits the amount going out of the selected account.
The Referral Fee Refund is a credit to the income account, so you’ll have to enter a negative number. If you just copied what Amazon displays, then your accounts will be incorrect.
If the product is returned to you in the same condition as it was received, then you’re done!
In these instances, you’d still create QuickBooks Online refund receipts. But you’d also have to account for the increase in inventory because all refund receipts automatically increase inventory. We can do this by creating an additional sales receipt for $0.
A sales receipt, like an invoice, will properly deduct inventory and adjust the Sales of Product Income and Cost of Goods Sold accounts.
Let’s take a look at the product report above.
You have an invoice that removes 1 from the Inventory Asset account. The refund receipt adds another 1 back into the Inventory Asset account. Because you didn’t receive the returned product, the sales receipt reduces the Inventory Asset account by 1.
Until you receive the product back to inspect or Amazon reimburses you, you’ve lost the cost of the item. So the Cost of Goods Sold account is $10 for that reason.
Once you’ve created the sales receipt to properly account for the refund without return, you’ll have to create an additional document to account for the product that the customer eventually returns.
We’re assuming that the product is still in sellable condition.
We’ll do this by creating a credit memo to adjust inventory accordingly.
Much like a sales receipt for $0 subtracts 1 from inventory, a credit memo for $0 will add 1 back into inventory. QuickBooks Online will adjust the other accounts accordingly.
In this screenshot, we’ve already created the sales receipt for $0 because the customer didn’t yet return the product. Then we created the Credit Memo for 1 at $0 because we received the return and it’s in sellable condition. The accounts are now accurate.
You can also just wait for the return, inspect it, and then create just the Refund Receipt if it’s sellable. But if it takes two months for the return to get back to you, you won’t be able to keep track of the transaction.
It’s better to record the lack of return with a Sales Receipt and then account for the return later with a Credit Memo when or if you actually receive it.
If you’ve sold on Amazon long enough, then you’ll know that customers don’t always return items in the same or sellable condition. It’s likely that you have a pile of damaged customer returns that you aren’t able to resell or recover. It’s also likely that you’ll have a few returns that are junk or not your items.
For items that are a complete loss, you don’t have to create any more documents if you’ve already created a sales receipt for $0.
By doing this, you’ve “sold” the item for $0 and your reports will show a sale for $0 and $10 for the Cost of Goods Sold. Essentially, you’ve lost $10 on that sale because of the cost of the item.
You’ve also lost some money due to shipping, pick and pack fees, and refund administration fees. These fees are properly recorded on the Expense accounts if you’ve been following our guide and creating the proper service items and accounts. When you run a Profit and Loss report, these expenses will show up.
If you suspect fraud or the customer was refunded an amount he shouldn’t have been (for FBA orders), you can file a SAFE-T claim for reimbursement. We’ll deal with these reimbursements in our Reimbursements article.
Need to track FBA returns because you’ve thrown away the shipping box? All FBA customer returns should have an LPN sticker on the product or the product packaging. Check out our article on tracking FBA returns to get the Order ID.
Sellers usually use one of two popular options for handling these types of returns.
Using one inventory item to track used and new
Some sellers may have one inventory item for new and used products. And they’ll track those outside of QuickBooks Online.
Sellers will create the credit memo to increase the quantity in QuickBooks Online if they’ve already created the sales receipt. Then they’d sell the item as Used on Amazon or some other marketplace and record the sale normally under one inventory item.
Creating a new inventory item for used returns
Other sellers will create a different inventory item for used products. So they’d have two separate SKUs: Garden Rocks and Garden Rocks Used.
Since sellers would have already created the sales receipt for $0, they’ll create a Credit Memo for the Used SKU.
The Credit Memo increases the Used inventory by 1 at $0. Without the Credit Memo, they’d have negative inventory when the sale occurs for the Used SKU.
While the Used SKU will record 100% profits because of a $0 COGS, you’ll have already recorded the COGS on the original order with the sales receipt. Your overall profit and loss report will still be accurate.
Tracking your new and used inventory this way does give you better details about your business, but it also results in more work.
If you’re using FBA, then Amazon automatically reimburses you 30-45 days after the customer fails to return the item.
Regardless of how Amazon reimburses you (whether in cash or in inventory), you’ll deal with it through Vendor documents. Check out our link on how to handle Amazon reimbursements properly. Or scroll down to the bottom of this article for our section of related articles.
If you’re consistent with your usage of the document types, you can run this inventory report in QuickBooks Online to quickly see your refunds and returns.
In this report, we see these details for a new product sold through FBA: 21 refunds, 16 sales receipts, and 2 credit memos. 5 refunds were issued upon return, and those 5 returns were put back into sellable inventory.
Of the 16 sales receipts, 2 (Credit Memos) were eventually returned in sellable condition. The remaining 14 sales receipts had some kind of issue (damaged, used, or customer failed to return). You’d have to create a removal order and decide what to do with those items. Some of these may need SAFE-T claims filed, some will be complete losses, and some may be sold as used after inspection.
Being consistent with our usage of invoices and sales receipts allows us to track inventory issues. If you’re inconsistent, then you won’t know how many returns have issues and need closer inspection.
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You’ll no longer have to worry about whether or not you’ve created the right documents or if they’ve been accurately entered.
- Amazon to QuickBooks Online Accounting: Configuring your New Company
- Amazon to QuickBooks Online Accounting: Using Purchase Orders to Receive Inventory
- Amazon to QuickBooks Online Accounting: Creating Proper Invoices
- Amazon to QuickBooks Online Accounting: Configuring Sales Tax and Marketplace Facilitator Tax
- Amazon to QuickBooks Online Accounting: Recording Reimbursements
- Amazon to QuickBooks Online Accounting: Processing Settlements and Bank Deposits