Exchange Accounting Options
Exchanges are integral to any return policy because they allow you to retain a portion of your return revenue and allow customers to get a product they love, increasing the chances that they become a loyal customer. Unfortunately, there is no perfect way to facilitate exchanges in Shopify. The challenges that can occur due to Shopify limitations are covered in the Exchanges in Shopify article, which we recommend reading first.
There is not a “one-size-fits-all” configuration due to different merchant data workflows, processes and preferences, but Loop offers two primary offerings to help with exchange accounting, which are outlined in this article. Here's what we will cover:
- Exchange Order Configuration Options
- Loop discount ON
- Loop discount OFF
- Adjustment Reports
- Tax Settings
- Summary & Next Steps: Accounting (Loop Discount On) // Accounting (Loop Discount Off)
Exchange Order Configuration Options
Each merchant is unique in how they choose to account for exchanges and the systems they use. Loop is flexible and can adjust how we create exchange orders depending on your needs. Loop offers merchants the ability to configure:
- Loop discount
What is the “Loop discount”? The Loop discount is a way to ensure that new exchange orders do not inflate net sales. Loop discounts a new exchange order by the amount of the customer’s return credit. Upsell orders will have a remaining balance to reflect the amount owed above and beyond the return credit.
Loop discount ON
What merchants benefit from using the loop discount?
- Merchants that preserve sales and tax on the original order in a third party system. The Loop discount ensures that new exchange orders do not create additional sales that would inflate the ledger. These merchants are typically not using Shopify as the source of truth for financial data.
- Merchants that are not using AvaTax for tax reporting. See Loop + AvaTax article for more information
What limitations exist for merchants using the Loop discount? This method inflates discounts and impacts average order value.
Loop discount OFF
What merchants benefit from NOT using the Loop discount?
- Merchants that use Shopify as the source of truth for financial data typically find this setup easier to reconcile
- Merchants that use AvaTax for tax reporting. See Loop + AvaTax article for more information
- Merchants that need full exchange order values to flow into a third party system
What problems exist for merchants NOT using the Loop discount? We still have to deal with order adjustments in Shopify due to inflated return and net sales totals. These must be removed to enable merchants to get accurate financial data.
What options does Loop offer for taxes on new exchange orders?
- Add tax for all items on the order (default)
- Add tax for only the outstanding balance of the order (think: upsell amount)
How do I know which option is best for me?
The answers to these questions will help determine the best option: What happens to tax on an original order in the system the merchant is using as the financial source of truth for tax? What then must be true about taxes on the new exchange order?
If tax is being removed on the original order: Taxes should be accounted for on the exchange order (option 1). This is typically the case if Shopify is the source of truth.
If tax is preserved on the original order: Taxes should only be applied to the amount above and beyond the return credit (option 2). This is typically the case for merchants that use an ERP or third party accounting tools.
Adjustment reports can be found in the Loop Admin, under Analytics > Reports. Adjustment reports must be used in conjunction with a merchant’s existing accounting flow within Shopify. In other words, Adjustment Reports are only valuable when applied against Shopify reports.
We know from the Exchanges in Shopify article that when Loop marks products as “returned” in Shopify without refunding money to the customer, Shopify creates an unwanted positive return order adjustment without the negative transaction order adjustment to cancel it out. We also know from above that the Loop discount inflates discounts in Shopify.
Sales adjustment reports help merchants obtain accurate financial information within Shopify by delivering at-a-glance offsets to:
- Remove order adjustments caused by exchanges and store credit returns
- Remove discounts and reflect as new net sales
Merchants can apply the offset totals to the appropriate bucket (discounts, returns, net sales) within Shopify or whichever system they use for end-of-month accounting reconciliation. The sales adjustment reports will dynamically populate for the two exchange order configuration options:
- Loop discount ON
- Loop discount OFF
As we’ve learned in Exchanges in Shopify and this article, there is no perfect solution for exchanges in Shopify and there is not a one-size-fits-all configuration, but Loop has created these different options to help enable the best exchange accounting process for your needs. To learn what reconciliation tools Loop provides, please visit Accounting (Loop-Discount On) or Accounting (Loop-Discount Off) per your configuration.
If you’d like to check or change your current settings or have questions to determine the best settings for you, please reach out to email@example.com.
Add Exchange Order Taxes to Order Total
If toggled on, include the total_tax when creating an exchange order in Shopify.
Only add upsell taxes to exchange orders
If toggled on, only the upsell portion of exchange taxes will be posted to exchange orders, orders with no upsell will have no taxes applied.
Post taxes to exchange order items
If toggled off, Loop will not post taxes on Shopify exchange order items. This setting must be enabled in order for the two previous settings to function.
What time zone is Loop reporting in? Adjustment reports reflect the time zone on the Shopify store but the rest of the reports are in GMT.