Record a return in three separate moves: reverse the revenue into a contra-income account called Refunds or Returns, reverse the cost of goods sold and put the unit back into inventory only if it is resellable, and record whatever fee the marketplace kept as an expense rather than netting it against the sale. Do those three things per return and your gross margin, your inventory balance and your 1099-K reconciliation all stay honest. Net the refund against sales in one line and all three drift.
The worked example below follows one $48 order through Amazon, then shows how the same logic changes on Shopify, eBay, Etsy and TikTok Shop, because each platform keeps a different slice of the refund.
Why netting refunds against sales is wrong
Two reasons, one for management and one for tax. For management, a product with $10,000 in sales and $1,500 in returns is a 15 percent return rate, which is a supplier or listing problem you want to see. Net to $8,500 and the problem disappears from every report.
For tax, marketplaces report gross payment volume on Form 1099-K. The IRS page on understanding your Form 1099-K gives the current federal threshold as over $20,000 in more than 200 transactions and notes platforms may report at lower amounts. That gross figure includes orders that were later refunded. If your books show net sales, your reported revenue will sit below the 1099-K, and you will be explaining the gap instead of showing a Returns line that accounts for it.
The example order
A customer buys one unit at $48.00 on Amazon, FBA fulfilled, in a 15 percent referral fee category. Your landed cost on the unit is $14.20. At the sale you posted: Amazon Sales $48.00, Referral Fees $7.20, FBA Fees (say) $5.90, COGS $14.20, and Inventory Asset down $14.20. Amazon’s published referral fee schedule on its selling fees page sets most categories at 15 percent with a $0.30 minimum per item as of September 2026; your exact category may differ.
Twelve days later the customer returns it.
Move 1: Reverse the revenue
Post $48.00 to a contra-income account, Refunds and Returns, that sits under income and reduces it. Gross sales stay at $48.00 on the report, refunds show $48.00, net is zero. Do not delete or edit the original sale.
Amazon refunds the referral fee to you when it refunds the customer, but keeps a refund administration fee. The exact formula is in Seller Central’s fee schedule and changes, so check it there rather than trusting a blog. Post the refunded referral fee as a credit to the Referral Fees expense account, and the administration fee Amazon kept as a debit to a Refund Admin Fees expense account. Your fee expense for the order is now the admin fee alone, which is correct: that is what the transaction cost you.
The FBA fulfillment fee stays as an expense unless the settlement shows a credit for it, which on a standard customer return it will not. You paid to ship something that came back.
Move 2: Decide what happened to the unit
This is where most sellers’ books go wrong, because the answer depends on the condition of the return and Amazon reports it in a different place from the refund.
If the unit came back sellable and went back into FBA stock: reverse COGS by $14.20 and increase Inventory Asset by $14.20. Your margin on the order is now negative by the FBA fee plus the admin fee, and that is the correct picture.
If the unit came back damaged, or Amazon marked it unsellable, or it never came back at all: leave COGS where it is. You sold the unit at a $14.20 cost and got $0 for it. Post nothing to inventory. If Amazon later reimburses you for a lost or damaged return, post that reimbursement as other income or as a credit to COGS, but only when the reimbursement appears in a settlement.
ConnectBooks handles this split explicitly in its sync, crediting sellable returns back to inventory and recording unsellable returns as a loss removed from inventory, then posting reimbursements when they land in QuickBooks or Xero. Whether software or a person does it, the rule is the same: the accounting follows the physical unit, not the refund.
Move 3: Reconcile it inside the settlement
The refund, the referral fee credit, the admin fee and any reimbursement all appear in the Amazon settlement report where they occurred, not necessarily in the same one as the sale. Post each line against the settlement it appears in. When the settlement’s net matches the bank deposit to the cent, the return is fully recorded. If it does not, the missing piece is usually a reimbursement or a fee reversal you have not posted yet.
How the other channels differ
Shopify. Shopify Payments deducts the refund from your next payout. Open the payout detail to see whether the card processing fee came back; if it did not, leave it as an expense. Post the refund to Refunds and Returns and handle the unit exactly as above. Partial refunds for a damaged item the customer keeps are revenue reversals only, with no inventory movement.
eBay. eBay’s selling fees page sets the final value fee for most categories at 13.6 percent of the total amount of the sale up to $7,500, and defines that total as the item price plus handling, shipping collected from the buyer and sales tax, plus a per-order fee of $0.30 for orders of $10 or less and $0.40 above. Because the fee base includes shipping and tax, a refund credit from eBay will not equal 13.6 percent of the item price. Post the credit eBay issues, not a calculation.
Etsy. Etsy’s fees policy lists a 6.5 percent transaction fee on the item price plus shipping and gift wrap, and a payment processing fee for US bank accounts of 3 percent plus $0.25 per order. Which of those come back on a refund depends on the refund type and is spelled out in the same policy. The $0.20 listing fee was charged at listing, not at sale, and is unrelated to the refund. Post the credit Etsy issues in your payment account and expense what stays gone.
TikTok Shop. TikTok’s US Seller Center fee update notice from 2024 set the referral fee at 6 percent per qualified order from April 1, 2024 and described a refund fee of 20 percent of the referral fee, capped at $5 per SKU. Confirm the current rate in your own Seller Center before relying on it, since TikTok has changed it before. The bookkeeping treatment matches Amazon’s: revenue reversal, fee credit, admin fee expense, and a separate decision about the unit.
Month-end checks
Three reports tell you whether returns are recorded properly. Refunds and Returns as a percentage of gross sales by channel, which should look like your operational return rate. Inventory Asset against a physical or FBA count, which should reconcile within a small tolerance if sellable returns are going back in. And a list of reimbursements received against reimbursements expected, because the money Amazon owes you for lost returns does not arrive unless someone tracks it.
Returns are the transaction type most likely to be half recorded, and the half that gets missed is usually the inventory side. Record the unit, not just the refund, and the rest follows.
