Record the physical movement and the financial event
Give each return a reference linked to the original transaction. Record when the customer was refunded, when the item arrived and whether it returned to saleable stock. A credit issued before the parcel arrives should not silently create an item on the shelf. Exchanges need both the returned item and the replacement movement.
For a shop serving local customers and shipping online orders, use one consistent product identifier across channels. Record transfers between the shop, a storage room and a fulfilment location. The transfer is a movement of the same stock, not a new purchase or sale. Keep damaged goods identifiable until their treatment has been approved.
Illustrative example: an outdoor-goods retailer
A Halifax retailer begins with 180 units of one product, receives 120 and sells 210. Eight units from those sales are physically returned and refunded during the same period. Expected stock is 98 units: 180 plus 120 less 210 plus 8. The count finds 94 units, including four damaged units.
There are four units missing from the quantity reconciliation, and four additional units requiring a condition assessment. Those are different issues. At an illustrative recorded unit cost of $22, the 94 units represent $2,068 before any justified valuation adjustment. Writing off eight missing units would confuse the shortage with goods that are physically present but damaged.
Link returns to the right tax and settlement records
Assume all 210 sales and eight refunds in this example were current Nova Scotia taxable transactions at $58 before HST per unit. Net sales are 202 units, or $11,716. HST at 14% is $1,640.24, making $13,356.24 before processor deductions. This simplified calculation assumes the refunds reverse the same prices and tax treatment.
An older sale may carry a different valid rate, so use the original transaction rather than today’s default code. Match refund confirmations with processor reports, including amounts still awaiting settlement. Input tax credits and inventory cost also require their own support; a refundable tax is not automatically part of the stock value.
Use the count to improve the next month
Investigate the four-unit shortage through receiving, transfers and sales records before approving an adjustment. Keep the count sheets and the decision about damaged goods with the close file. The year-end inventory method and valuation should remain consistent with the business’s accounting and tax requirements.
- Link refunds to original sales.
- Record returned goods only when received.
- Separate missing quantities from damaged stock.
- Reconcile quantities, valuation and processor settlements.
Put this into practice
Sources and current guidance
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