If you are running an e-commerce store on Amazon, you know that it takes a lot of work to make it happen. The quality of your product is not the only thing to worry about. There is also the fact that you want to be discovered, to attract customers and to, of course, motivate them to make a purchase. In other words, there is also marketing to worry about.
But, even that’s not all. When you were first thinking about starting the store, you may have thought about just about anything, from marketing to accounting. After all, that’s what you should do when you are serious about your business and you want to do things right. When it comes to accounting, just like most small business owners, you may have decided to run the books alone. This is not a bad idea if you really know how to do it right, but don’t forget to get help if you need it.
For a while, it may have all been pretty clear-cut and simple. And then, you got your first refund or chargeback request. This automatically raised a question. How can you manage those in your books? Things may not be too complicated, but the truth is that it takes some time to learn how to do this right, which means that you shouldn’t wing it and hope for the best.
Quite on the contrary, you should take the time you need to understand how to do this the right way. And, if you’re ready for that, then you should undeniably keep on reading, because I will answer some important questions for you below, as well as help you understand how to manage Amazon refunds and chargebacks in your books, by taking you through the process, step by step. There is no doubt that great Amazon accounting tips for small businesses are certainly useful, as they can put you on the right track and ensure that you’re managing those books accurately. And, well, refunds and chargebacks are sure to be an essential part of doing that, so let me tell you more about how to manage them.
First, What Are Refunds and Chargebacks?
We have to begin with the most basic question here. What exactly are Amazon refund and chargebacks? Basically, when a customer returns the product and gets his or her money back, we are talking about a refund. And, there are various reasons why this may happen, from the product being defective to the customer simply changing his or her mind.
On the other hand, a chargeback occurs when the customer disputes the transaction directly with the bank, or with their credit card issuer. This happens if they have never received the product, if they don’t recognize the actual charge, or if they claim that the item was misrepresented at the store. After Amazon investigates the claim and if the ruling is in the favor of the customer, the funds are withdrawn from your account, together with any additional fees if applicable.
Why Managing Them Accurately Is Important
Clearly, both of these situations, the refunds and the chargebacks, involve funds being deducted from your balance. Therefore, properly managing them in your accounting software, that is, in your books, is of utmost importance. If you don’t handle them the right way, that may result to overstated income, misstated expenses, as well as cash flow confusion and even tax inaccuracies. Since you would much rather avoid all of those scenarios, you should undoubtedly do your best to properly track and manage these in your books.
How to Manage Them in Your Books
The above brings us to our main question of the day. How can you exactly manage Amazon refunds and chargebacks in your books? There are several important steps to take here, so let us now take you through those, in an effort to help you do everything the right way.
Whatever kind of an account system you are using, you should create dedicated accounts for different things, as that will help you with auditing and reporting. So, have a separate account for Amazon sales revenue, then a separate one for refunds and returns, as well as for chargebacks, and for Amazon fees. As you may very well understand, this helps make everything perfectly clear in your books, which is definitely important.
Now, the first thing you have to do is record the original sale as income. This probably goes without saying, but it is an essential step in managing refunds and chargebacks, so we have to mention it. When recording, don’t forget to reflect not only the gross revenue, but also any fees that Amazon may apply.
Once that is done, and then a refund happens, your task will be to record the refund. This will include reversing the revenue, and reversing the associated fees. Remember to adjust the amount in case Amazon doesn’t refund the full fee. As for the chargeback, the process is similar. Basically, you have to record the chargeback once you are notified of it, as well as the additional fees that Amazon typically charges for processing the chargeback.
Now, what you should never forget is to adjust your inventory accordingly. In the case of a refund, if the item is returned and it is in a sellable condition, you should add it back to the inventory. If it is returned but not in a sellable condition, you have to record the loss. And, you also have to record the loss if the item is not returned at all, which can happen in the case of chargebacks.
When you don’t have to deal with a lot of refunds and chargebacks, you may be able to do it all manually. But, as your business grows, you may be faced with more situations like these, and things can quickly get complicated. That’s when you should think about getting the right software solution to automate this process, and never worry about whether you’ve done it the right way or not.
