The profit and loss statement shows “net income” instead of “gross income”. This means if I have a return and debit the return to the sales account, my “gross income” is less than my “net income”, but the profit/loss statement only shows the net. In the US, I’m required to report “gross income” and then list any returns on a separate line. Is it possible to get “gross income” from a report? Or should I set up a separate expense account for returns, and debit the return to the expense account instead of debiting the sales account?
We have this issue too and we have inventory. So far, the best solution I’ve come up with is:
Sales Invoice: leave it modified
create an account under a category Contra-Revenue called Sales Return, put the category just below Gross Revenue in the CoA.
create a total called Net Sales below Gross Revenue and Contra-Revenue
Journal or Purchase Invoice that debits Sales Return, negative amount to Sales Return on the Receipt works too (we use Purchase Invoice because every return is essentially a bill for us)
if you have inventory, then do Inventory Write-Off with negative quantity (to increase inventory back to its original value before the sale)
You could also do Credit Note to another account like Sales Return instead of the default Item or revenue account, this will prevent netting of gross revenue and provide context on the Sales Invoice, but you still have to deal with inventory separately.
This made me realize that I think the issue is that I’m listing returns as a negative quantity on a receipt instead of making them payments. I thought about this some more and realized that if I just do a return as a payment of 1 item at the current item unit cost + an “return” expense to a return expense account for the remainder, everything works out. I don’t have to adjust the Inventory - sales account, because the amount written off is offset by the “purchase” made in the payment and the income is offset by the expense. This preserves everything without me having to make a bunch of extra accounts or use journal entries.
Yes, you can still see your gross income by running a report that shows total sales before any returns are deducted. Just keep returns in a separate “sales returns” account instead of an expense so your reports stay accurate.
This works if you return the item to inventory in sellable condition. Both Journal Entry and this method allow you to specify the COGS of the returned item. Inventory Write-Off method will let Manager calculate the COGS.