Cancellations Journal Entry

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:

1. 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:

1. 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.
2. 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.