Overview
Blue Onion's Cancellation Journal entry provides a detailed journal entry to record of the impact of order cancellations within a specific period. The journal entry is broken out based on whether the order items were refunded or not refunded:
Non-Refunded Cancellations
For orders that are canceled but not refunded:
Deferred Revenue Adjustment: Ensure that the deferred revenue recorded when the order was placed is adjusted. This involves:
Removing Deferred Revenue and Sales Tax: Adjustments made to the gross deferred revenue, shipping, discounts, and sales tax payable.
Clearing Accounts Receivable: Since the payment will no longer be received, accounts receivable must be cleared.
Refunded Cancellations
For orders that have been refunded - and a note that Shopify charges the customer immediately upon order placement and processes refunds accordingly, and thus most cancelled orders will land in this section:
Deferred Revenue and Other Adjustments:
Similar to non-refunded cancellations, adjust deferred revenue, sales tax payable, and other related accounts. A note that the sales tax adjustment here is reversing out the refunded sales tax already booked with the refund issuance on the Orders journal entry.
Removing Refund Expenses:
The refund expense should reflect actual refunds for product, accounting only for fulfilled items and distinguishing true refund expenses from cancellation-related adjustments.
Ensure the refund expense accurately represents the net cost after accounting for the initial order and subsequent refund.
A note that the merchant fees or other expenses tied to processing refund transactions will still be included in the “At Cash Receipt” journal entry.
Cross-Period Cancellations
Cancellations can occur across different periods. For example, an order placed last month might be canceled in the current month. In such cases:
Ensure that the deferred revenue and related accounts are adjusted for the period in which the cancellation occurs, not necessarily when the order was placed.
While we are a team of former accountants, we are not in the business of providing professional services. The information presented is for informational purposes only and is not intended to be a substitute for professional accounting, tax, or legal advice. We recommend that you consult with a qualified accountant, tax advisor, or lawyer who is familiar with the specific needs and nuances of your business.