Question

Refund Showing as Negative Amount In COGS, resulting in a $0 COGS in the future. NOT RIGHT!!

Forum|Forum|6 years ago
January 25, 2020
2 replies
6 views

Here is what I have seen on my COGS for an item.

Whenever we do a refund receipt, it shows up as a negative in COGS. To me, that seems right because you are reversing the previous positive charge in COGS when you sold the item. For example, lets take SKU A as an example with a cost of $10:
Sold Sku A to billy bob for $20. This would show up as a $10 COGS expense
Billy Bob Returns the item which would then "put back" the $10 back in COGS as a negative.
This would show up in COGS as:
Sales Receipt $10
Refund $-10

The problem is when I go to resell that same item, it shows up as a COGS of $0 which makes me show a 100% profit. This doesnt seem right to me. To me, the COGS should be $10. So when Norma Jean buys SKU A for $20. It shows up on COGS as
Sales Receipt $0

So under this scenario, my profit is doing this:
Original Sale:$10
Refund: -$10
2nd Sale: $20
Resulting overall profit: $20

This cant be right.

Ive taken a snapshot for a sku i have in question. This is my inventory valuation summary for this product. Back in October. I had a refund of 4 items, and 2 items were purchased at $0 costs. The 2 items purchased at $0 cost is correct so please ignore that for now. Lets take note of the 4 that were refunded

But now here in January under the FIFO rule, those 6 items are being sold as $0 profit. 2 of those items should be correctly sold as $0, but the remaining 4 should not in my opinion.

Sure enough, as I check my COGS account for january, these 6 items are being sold at a $0 cost. (these 3 sales receipts have a total of 6 of these items):

QuickBooks Online

Regina_Lend_A_Hand_Accounting

Level 2

A refund receipt is used only when the customer has paid for the item and it is being returned and refunded. The same item should be used on the refund receipt that was used on the original sales form. You will also want to check the setup of the inventory item to make sure that it is mapped to the correct income and COGS accounts.

A

AileneA

Moderator

Good day, @SnailBooks.

As replicated in my end, it's not the refund that was causing inaccurate. though, when you create a bill, the rate is 0 automatically COST shows 0 as well. The refund doesn't affect anything in your Cost, the basis of refund is when you create as a sales receipt, and the rate is 0 the FIFO COST will be 0 also. It depends on the rate you input in your bill.

For more details about how inventory works in QuickBooks, check out these articles:

Please don't hesitate to reply in the thread if you need further assistance. I'll be here to lend you a hand. Have a great day!

Regina_Lend_A_Hand_Accounting

Level 2

The refund receipt does not impact COGS, that is correct. And a refund receipt is only used when you have received payment for an item sold and that item has been returned and is therefore being refunded due to the return. The FIFO (first-in-first-out) method is used in QBO. When you first purchase an inventory item in QBO via an expense entry, the cost is assigned based on the purchase price. It automatically adjusts with each new purchase transaction. When you create a sales form, such as a sales receipt, you are recording the sale of the item, reducing the on-hand inventory and automatically adjusting the COGS based on your on-hand inventory value via FIFO. It is important to make sure that your inventory items are setup right and correctly mapped to income, inventory asset and COGS accounts as well.

S

SnailBooksAuthor

Thank you very much for you help! I am showing that a refund is indeed affecting our cost of goods sold as a negative amount. And you are correct, all of these scenarios are where a customer returns the item for a refund and the item is put back into stock. Here is a small screenshot of my cost of goods sold for just a few items that were issued a refund receipt this month:

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