How does accounting work for TryNow orders?
Updated over a week ago

TryNow orders operate under the principle of Try Before You Buy, which is a convenient purchase option for shoppers. While this increases shopper satisfaction and engagement with customers, it also means you may need to account for these orders slightly differently than for standard orders.

Please find some basic guidelines below, but note that you should consult your CPA for advisement and your CPA and/or accounting team should make the final determination of how to implement all accounting policies and procedures.

For cash-based accounting

TryNow orders defer cash collection until the trial has finalized and the shopper has returned any items they choose not to keep. This means that you will not recognize revenue or cash until several days after the order is placed. Once the trial period is finalized (this amount of time can vary based on fulfillment, shipping, the trial period you set in merchant portal, and the return shipping and processing time), you will be able to capture the authorization on the shopper's card for the correct net amount. At this time, you should also recognize this amount as cash and as revenue.

For accrual-based accounting:

Because the order happens in advance of cash collection, you will need to accrue for both your revenue and the possibility of returns before cash is collected from customers. This can be done in a few steps:

  1. Recognize Revenue

    1. Revenue for TryNow orders should be recognized at the same point you recognize revenue from standard orders (generally, when it is shipped or when it is received by the customer).

    2. Debit "Accounts Receivable" (asset account) to record the amount owed by the customer.

    3. Credit "Sales" (revenue account) for the full amount of the sale.

    4. Account for changes in inventory as you normally would.

  2. Add to the Return Reserve

    1. Estimate the return rate for your trial program. This should be higher than your standard return rate because trials inherently have a higher level of returns associated with them. We suggest starting with 25%-50% and adjusting based on how shoppers use your program.

    2. Apply the estimated return rate to the total TryNow sales amount to determine the estimated returns.

    3. Debit "Allowance for Sales Returns" (contra-revenue account) for the estimated returns amount to reduce revenue.

    4. Credit "Sales Returns Reserve" (liability account) for the estimated returns amount to account for the liability.

  3. Record Actual Returns

    1. When customers return products, debit "Sales Returns Reserve" and credit "Accounts Receivable" to adjust the reserve and reduce the amount owed by the customer.

    2. Adjust inventory levels as normal, if applicable.

  4. Collect Cash

    1. When the trial ends and you charge the customer's card for the net value of the order, recognize cash collected by debiting Cash (asset account) to reflect the cash collected.

    2. Credit Accounts Receivable to reflect the reduction in the amount owed by the customer.

Don't forget to periodically review the accuracy of the return reserve by comparing actual returns to the estimated returns, and adjust the Sales Returns Reserve as necessary.

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