How do I handle inventory that I purchased but then returned to the vendor?

Sometimes, you buy inventory for resale and later end up returning some (or all) of it to the vendor. Maybe the items arrived damaged, didn't match the description, or just didn't sell the way you hoped. Here's how to keep your books (and your inventory counts) accurate when that happens.

The right approach depends on how you're tracking inventory in Seller Ledger.

If you're NOT tracking inventory (i.e. you are categorizing purchases as Cost of Goods Sold)

This is the simplest case. When you originally bought the inventory, you categorized the purchase as Cost of Goods Sold. When the vendor refunds you, you'll see a credit/deposit show up in the same bank or credit card account you used to buy the items.

1. Find the refund transaction in your bank or credit card account.
2. Click to categorize it.
3. Choose Cost of Goods Sold as the category.

Because the refund is a positive amount (money coming back to you) and Cost of Goods Sold is an expense category, this will reduce your total Cost of Goods Sold by the refund amount — effectively canceling out the original purchase (or the portion that was returned).

If you're using periodic inventory tracking

With periodic tracking, your original purchase was categorized as Inventory, which added to your Inventory asset account rather than to an expense. When the vendor refunds you, you'll want to reduce that inventory balance by the same amount.

1. Find the refund transaction in your bank or credit card account.
2. Click to categorize it.
3. Scroll to the bottom of the category list and choose Transfer: Inventory.

This will reduce your Inventory balance by the refunded amount, keeping your end-of-year inventory count accurate.

If you're using continuous inventory tracking

Continuous tracking (at the item-level) requires an extra step, because you want to make sure the specific returned items are removed from your inventory (not just the dollar amount). How to do this will depend on whether you have a connected bank or credit card account that imported the refunded amount.

The refund shows up in my connected bank/credit card account

Step 1: Categorize the vendor refund

When the refund shows up in your bank or credit card account:

1. Find the refund transaction and click to categorize it.
2. Scroll to the bottom of the category list and choose Transfer: Inventory

Step 2: Specify which items were part of that refund

Find that refunded transaction under Inventory -> Purchases, click "Add details" and select the item(s) that were returned to the vendor.

I don't have connected bank or credit card accounts showing that refund

In this case, we have a specific step for you to follow.

Remove the returned items from your inventory

1. Go to the Inventory tab and click the In Stock sub-tab.
2. Click the Remove stock button.
3. Where is says "Select reason", choose Return to Vendor.
4. Select the item(s) you returned to the vendor and enter the quantity being returned.