Setting aside sales that are likely to come back
Whether a shop with a generous returns policy should hold back part of recent sales for likely returns, and how the estimate is made and recorded.
By Achekam · · 5 min read · For Retail businesses in South Africa, Nigeria, Kenya
December is a clothing shop's best month. Gifts are bought in a rush, in the wrong sizes and the wrong colours, and the shop's generous returns policy is part of why customers buy there. January brings the other half of the story: a queue at the counter of people bringing back what they were given.
If December's sales are counted in full and January absorbs every refund, December looks better than it was and January worse. For a shop with a liberal returns policy, the honest view is that some of the December sales were never going to stick, and the books should say so at the time. That is what a returns estimate does.
Why a generous policy makes part of each sale uncertain
When a customer can bring goods back for a refund within a set period, the shop does not know, at the moment of sale, how much of the money it will keep. Most customers keep what they bought. Some return it. Across thousands of till slips, the share that comes back is fairly predictable, even though no single sale is.
That predictability is the key. The shop cannot say which sale will be reversed, but it can say roughly how much of a month's sales will be.
IFRS 15: revenue at the amount you expect to keep
IFRS 15 requires revenue to be recognised in an amount that reflects the consideration the business expects to be entitled to in exchange for the goods transferred. Where the consideration includes a variable amount, the business must estimate the amount it expects to be entitled to. The IFRS Foundation's summary of IFRS 15 sets out these principles.
A right of return makes part of the price variable: the customer may take the money back. So revenue for the period should reflect the sales the shop expects to keep, not every sale rung up. The difference sits in the balance sheet as a refund liability, an amount the shop expects to pay back to customers.
Estimating from your own refund history
ACCA explains that variable consideration is estimated using either the expected value or the most likely amount, and included only to the extent that it is highly probable that a significant reversal of revenue will not occur.
For a shop with many small sales, the expected value method fits naturally. Your own till records are the evidence:
- Take each month's sales for the past year or two.
- Take the refunds that relate to those sales, matched to the month of the original sale where possible.
- Work out the share of each month's sales that came back.
- Note the seasonal pattern: festive-season months often behave differently from the rest of the year.
The "highly probable" test asks whether the estimate is cautious enough. If your returns history is short, or a new product line or a new policy makes the past a poor guide, set the estimate higher until you have better data.
A worked example in words. The shop looks at last December's sales and the refunds in January and February that related to them, and finds what share came back. It applies the same share to this December's sales at month end, adjusted up a little because this year's policy allows a longer returns window. That amount is taken out of December's revenue and held as a refund liability. As January's refunds come in, they are set against the liability instead of reducing January's sales.
Your accountant will also consider the goods that come back, since returned stock that can be resold has a value of its own. Agree how that side is treated at the same time.
State the policy clearly at the time of sale
A returns policy only works, for the customer and for the estimate, if it is clear. Visa advises merchants to state their return, refund and cancellation policies clearly at the time of the transaction, pre-printed on the sales receipt or added near the customer signature line, and legible on all copies.
Print the policy on every till slip, display it at the counter and on the website, and make sure staff apply it the same way. A policy that changes from one cashier to the next makes your refund history a poor basis for any estimate. In South Africa, statutory return rights also apply alongside your own policy; see section 20 returns.
Till refunds and the month-end journal in Achekam
In Achekam, a supervisor or manager can refund all or part of a till sale with a reason, as its own document linked to the original sale, with the goods put back into stock. Because each refund is linked to the sale it reverses, your history of refunds against the month of sale is easier to build, and the reasons recorded show what drives returns.
The estimate itself is a manual journal at month end: it reduces sales revenue and raises a refund liability, using the accounts your accountant chooses. Each month, compare the liability with the refunds still expected on recent sales and adjust it by journal. Achekam refuses a journal that does not balance or is dated in a closed month, and a posted journal is corrected only by a reversal, so the estimate and every adjustment stay on the record.
The management accounts then show the result: an income statement for a chosen period beside the period before, and a balance sheet at period end, built from the business's own journals and exportable as PDF or CSV. December's revenue reflects what the shop expects to keep, and the refund liability is visible at month end.
Revisit the estimate after every busy season
The estimate is only as good as its last review. After each peak, such as the festive season or a back-to-school rush:
- Compare the refunds that actually came in with the liability you set.
- Adjust the share you use if the difference was large.
- Check whether a product line, supplier or size range is driving returns.
- Update the estimate for any change to the policy itself.
Start with last season's slips
Pull last year's sales and refunds by month, work out the share that came back, and agree the method with your accountant before the next busy season. For how refunds, voids and store credit are handled at the till, read refunds, voids and store credit.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
