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Level 1

How to record a vendor refund and reduce COGS but not inventory

We purchased a product from a vendor that we resell. We bake shipping into COGS to reflect the "landed COGS". However, the vendor refunded us shipping because of a late shipment on their end. Nice! ... but how to do we reflect the refund as a reduction in COGS without reducing the inventory quantity on hand?

Example:
- PO for 5 widgets for $5 each  ($25 total on the PO)
- Shipping was $10 at time of delivery (on the bill)
- We paid the bill with a debit card (terms we have with this vendor)
- So COGS would be $7 per widget ($25 + $10 = $35 ...thus...  $35 / 5 widgets = $7)
- Vendor refunds shipping, so COGS should be reduced to $5 per widget, but inventory stays at 5 widgets.   <-- how do I reflect this??

I've tried to enter a bill credit from the vendor. I can show the reduction in cost, but it also reduces our quantity on hand. I then tried a deposit made to the COGS account (i.e., Cost of Goods Sold:Widgets) but that didn't reflect a reduction to the COGS (i.e., the Average Cost as shown in the Item List and elsewhere).

Help!!   :-O
Solved
Best answer 12-10-2018

Best Answers
Level 15

"We bake shipping into COGS to reflect the "landed COGS"....

"We bake shipping into COGS to reflect the "landed COGS"."

You want to bake that into Inventory, then.

And the refund is just a generic Income to you. Don't worry about the inventory if that still is on hand. You have a condition called Significance and Timeliness. If the products will sell in a timely manner to you entering this as income, your Net will reflect this condition already. If the Shipping is $50,000 against a $130,000 Tractor, that also would be different. It also depends on the timing of the bill for acquisition. You can go back to edit that bill and split it differently, but if you have sales for those items forward of that, you just changed history and caused everything to cascade due to recalculations.

Don't make a simple matter into something much worse.

View solution in original post

7 Comments
Level 15

"We bake shipping into COGS to reflect the "landed COGS"....

"We bake shipping into COGS to reflect the "landed COGS"."

You want to bake that into Inventory, then.

And the refund is just a generic Income to you. Don't worry about the inventory if that still is on hand. You have a condition called Significance and Timeliness. If the products will sell in a timely manner to you entering this as income, your Net will reflect this condition already. If the Shipping is $50,000 against a $130,000 Tractor, that also would be different. It also depends on the timing of the bill for acquisition. You can go back to edit that bill and split it differently, but if you have sales for those items forward of that, you just changed history and caused everything to cascade due to recalculations.

Don't make a simple matter into something much worse.

View solution in original post

Level 1

yes posssible in quik books

yes posssible in quik books
Level 15

@ Ted IF, if you got a vendor credit, enter it and use o...

@ Ted

IF, if you got a vendor credit, enter it and use other income as the source account.  The credit will be applied to the next order, lowering your cash flow

IF, if you got an actual check, I would just enter it as a deposit and use other income as the source for the deposit

While  a value adjustment (desktop only) will work I do not recommend it, but if you use it be sure to document why you are adjusting value in case of an audit.


Level 1

@Rustler - Tips & Tutorials Thank you. It was an actual r...

@Rustler - Tips & Tutorials Thank you. It was an actual refund in the form of a check (a debit card refund, technically), not a credit. You suggestion mirrors the advice of @qbteachmt too. I'll not complicate things and simply enter is as other income.   Many thanks to you both for the reply. Very helpful.  -Ted
Level 15

You're Welcome

You're Welcome
Level 15

Sorry, here: Enter the refund of shipping to an Other Ass...

Sorry, here:

Enter the refund of shipping to an Other Asset account.

Adjust inventory as a Cost or Value adjustment, and reduce total cost by this amount. The Adjustment account field at the top is the other asset account.

Now, you Unbaked shipping and cleared the other asset account.

Or, it isn't really significant and you want normal margins to show.

Level 1

@qbteachmt - your explanation of significance and time ma...

@qbteachmt - your explanation of significance and time makes all the sense in the world. I was over-complicating, wanting to reflect things 100% accurately. However, the complication isn't worth it as if affects our COGS and resulting margins very little. Your suspicion was right.

Having said that, if I really want to complicate things, then a value adjustment to inventory makes sense too.  THANK YOU SO MUCH!!

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