Handling product returns

How you handle a product return depends on the circumstances of the returned item.

If a product has been returned and a refund is made to the customer:

If the order contains only the returned item you can cancel the order - this will remove the total revenue and reverse all inventory adjustments made. If the order contains items other than the returned item, you can alternatively edit the order and remove only the returned item. The order revenue will be recalculated to represent the difference in cost.

If a product has been returned for exchange only:

If the item is in a resellable state, in order to ensure that COGS are calculated on the order correctly you'll want to edit the order to remove the old item and replace it with the exchanged item.

Returns across financial periods

For refunds that occur across an accounting financial period, you'll want to keep the order in place to ensure that the revenue is still recorded for the past year as per your last return. In order to account for the refund, you'll want to make a note for any refunds that have been applied and ensure that it is manually applied as part of your refunds tally for the next year. 

If the item was returned as part of the refund, you'll also need to create an inventory adjustment to return this stock to your inventory on the date of refund (or when the item is returned). Please note that as the COGS has already been attributed in the past financial year, this stock will be returned to your inventory with a zero cost.

We recommend discussing refunds and exchanges with your taxation advisor to ensure that the guidance above is applicable to your exact business situation.