Question – I have a question about breakages when you have sent the item to the customer or faulty goods. Whenever I sell something that is not as described (mistakes happen) or has broken due to my packaging, I give a full refund and let the customer keep the item. From the accounting perspective, I realize this isn’t like a credit, because the item does not go back into my inventory. I am using Wave Accounting, though that’s not so important. I am just wondering how I would code those transactions when they go out…spoilage? Sorry, this is one area I’m pretty clueless on.
Our response – Create an income account called refunds. You keep the original income but then add a negative refund in. can easily do as a journal entry – debit: refund, credit: checking account. Don’t touch inventory if you aren’t putting it back in because you’ll still need to add it into COGS at the end of the month.