Managing your bookkeeping for sales through E-commerce operators like Amazon and Flipkart doesn't have to be complicated.
In this article, you will learn how to keep your financial records organized and accurate.
Create a ledger for the E-commerce operator: Begin by setting up a dedicated ledger for the operator. Ensure the ledger type is specified as E-commerce Operator to streamline your record-keeping.
Record Sales Invoices: Whenever you issue an invoice, record the sale with the buyer listed as an unregistered party. Debit the transaction to the ledger of the E-commerce operator to maintain a clear record of your sales.
Manage Refunds When and if the E-commerce operator deducts a refund, create a credit note.
Note: In case of courier returns or cancellations before delivery, you need to book a credit note.
Record Monthly Bills: Regularly book bills from the E-commerce operator for services such as commission, logistics, and payment collection. This is typically done monthly, providing a comprehensive overview of your operational costs. Debit these expenses to the respective ledgers, and credit to the E-commerce Operator ledger.
Reconcile bank receipts. When you receive payments in your bank from the E-commerce operator, Credit them to the ledger of the E-commerce operator.
Under the Goods and Services Tax (GST) regulations in India, e-commerce platforms like Amazon and Flipkart are required to levy Tax Collected at Source (TCS) at a rate of 1% on the taxable value of goods sold on their platforms.
This TCS sum is gathered from the seller and managed by the platform, serving as part of the seller's GST responsibility that the platform collects on their behalf. Sellers need to reconcile and incorporate this TCS sum when they file their monthly GST.
When products are returned, marketplaces refund customers upon pickup, ensuring to reimburse the TCS collected from the seller during the refund deduction process.
The reason for booking a credit note at the time of refund is twofold:
GST Compliance: Under GST regulations, businesses need to maintain accurate records of all financial transactions, including refunds and returns. Failure to do so can lead to discrepancies in GST returns filed and can result in non-compliance issues.
Reconciliation: Booking a credit note helps in reconciling your financial statements effectively. It allows you to match the TCS refund received from the marketplace with the original TCS liability, ensuring that your financial records accurately reflect the flow of funds and comply with tax regulations.
Hence, documenting a credit note upon an e-commerce platform's refund deduction is not just a wise financial choice but also a legal necessity for GST compliance. It is vital for upholding the accuracy of your financial records, inventory management, and adherence to GST regulations.
Even when returns are lost or damaged, it's essential to maintain GST compliance. Booking a credit note for the original transaction is a necessary step to adhere to GST regulations.
Optionally, you can establish an In-transit Inventory ledger to track returns not yet delivered and credit the In-transit ledger when a refund is deducted. Once the return is delivered, debit the In-transit Inventory and credit the On-Hand Inventory.
Additionally, you'll need to create a debit note entry to claim reimbursements for lost and damaged returns. This approach allows you to fulfill your GST obligations while tracking and reconciling lost and damaged return scenarios effectively.