Our most recent A2X update includes a release to support the new Shopify returns functionality - you can read more about Shopify's returns release here.
Shopify now allows in built functionality for merchants to manage the returns process - which allows customer (or the merchant via the back end), to advise of an upcoming return (return in progress) and has introduced automation to allow the merchant to restock and/or refund, or provide an exchange item for the return.
Each of these activities have accounting implications for the Shopify business. In addition, the Shopify finance summary returns row is updated at the time of return notification. In order to allow our customers to make decisions about how they wish to map a return notification, A2X has created a number of new transaction detail rows.
It is important to clarify the terminology "return" and "refund" in relation to Shopify.
A "return" is a notification by a customer that they intend to send the purchased item back to the merchant.
A "pending return" is a notification from the customer to the merchant that an item has not yet been received, or closed off in Shopify.
A "refund" is when consideration is returned to the customer, that is not associated with a return or is the result of refunding a line item(s) within a pending return.
When a return is initiated by a customer the merchant can deal with this in a few different ways:
The merchant can refund the item by returning all or part of the payment to the customer.
The merchant can offer a store credit or gift certificate to use in the future.
The merchant can do nothing, perhaps because the item cannot be refunded or exchanged according to the terms of the sale.
The merchant may exchange the item and refund/charge any difference between the returned and exchanged item.
Please refer to the following example to understand where Shopify (and therefore A2X) presents each amount within their finance summary:
Date | Event | Presented in Summary Report |
Day 1 | Sale of Green T-Shirt | Gross Sales (+) |
Day 1 | Discount on Green T-Shirt | Discount (-) |
Day 1 | Tax Collected on Green T-Shirt | Taxes (+) |
Day 2 | Return Notification advised - (amount net of tax) | Returns (-) |
Day 2 | Return Notification advised - (tax amount) | Taxes (-) |
Day 3 | Exchange processed on sale (for new item value) | Gross Sales (+) |
Day 4 | Refund paid for difference between original item and exchanged item | This does not show up in the summary report on Day 4, it will be reflected in the net change between Day 2 and 3 |
In order to roll out this change, A2X has introduced new transaction detail rows. If you have auto-mapping enabled, the new detail rows will inherit the mapping information from the original auto-mapped transaction category. You can of course change the detail of the mapping to another general ledger code within the accounts and taxes section.
If you have auto-mapping disabled, you will need to ensure that you allocate your choice of general ledger code to each new transaction row prior to sending each payout to your accounting ledger. Please note the fourth column is a suggestion only and it is best to confirm with your accountant or bookkeeper.
Transaction Detail | What is this? | Transaction Category | Balance Sheet or P&L? |
DutyReturn | The duty on the return item | Other | P&L |
DutyReturnTax | The amount of the tax applicable to the duty on the return item | Other | Balance Sheet |
Pending Payments | Merchant has been advised an item is being returned | PendingReturn | Balance Sheet |
ReturnAdjustment | The difference between a return and the amount refunded, net of applicable taxes | Refunds | P&L |
ReturnAdjustmentExcludingTax | The difference between a return and the amount refunded (where no tax was charged originally) | Refunds | P&L |
ReturnAdjustmentNotTaxed | The difference between a return and the amount refunded (where no tax was charged originally) | Refunds | P&L |
ReturnAdjustmentTax | The amount of the tax applicable to the return adjustment | Refunds Tax | Balance Sheet |
ReturnDiscountExcludingTax | The amount of a discount that was applied to the return, net of applicable taxes | Discounts | P&L |
ReturnDiscountNotTaxed | The amount of a discount that was applied to the return (where no tax was charged originally) | Discounts | P&L |
ReturnDiscountTax | The amount of the tax applicable to the discount on the return item | Discount Tax | Balance Sheet |
ReturnExcludingTax | The return amount, net of applicable taxes | Refunds | P&L |
ReturnNotTaxed | The return amount (where no tax was charged originally) | Refunds | P&L |
ReturnShippingFee | The fee charged by the merchant to the customer for shipping the returned item | Shipping Income | P&L |
ReturnRestockingFee | The fee charged by the merchant to the customer for restocking the returned item | Other | P&L |
ReturnTax | The amount of the tax applicable to the return | Refunds Tax | Balance Sheet |
ShippingReturnExcludingTax | The amount of shipping revenue relating to the return, net of applicable taxes | Shipping Income | P&L |
ShippingReturnNotTaxed | The amount of shipping revenue relating to the return (where no tax was charged originally) | Shipping Income | P&L |
ShippingReturnTax | The amount of the tax applicable to the shipping on the return | Shipping Tax | Balance Sheet |