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Accounting For Chargebacks

Some customer charges us some fees for errors in not following their business rules. Their fees are typically assessed per occurrence. We have been accounting these chargebacks as other operating expenses since these expenses are related to non-compliance. However, should it be part of cost of goods sold? Some fees are listed below: • - Using wrong shipping provider • - Missing or Incorrect shipping labels • - ASN that does not match cartons • - Shipment received too early or late Thanks for your help.

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I have recorded it as contra-revenue, most recently in the apparel business.

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Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

On the other side of the fence I've coded it as reductions to logistics costs as the rationale is we had incurred additional costs as a result of supplier error. Not Cogs but just below impacting contribution margin.

Duncan Williamson
Title: consultant
Company: duncan williamson ltd
(consultant, duncan williamson ltd) |

You have to ask which manager is responsible for these costs. Wherever that manager's costs appear is where these costs belong. Responsibility accounting.

Anonymous
(Accounting Manager) |

Thanks for your help.

(Agent, JKS Solutions, Inc.) |

Agree you need to get to the source of these charges. These fees are an operating cost and administrative in nature. Using the wrong shipping company example you provided, where ever you charge the shipping costs normally, these fees should be charged there, since technically they are a cost of those specific sales. Bad decision making aside, these costs are part of doing business. Take this to your Controller or leader and get their opinion on how far to push the costs into the managers department costs, because it's not always a good idea to "gotcha" someone in corporate life. While it's nice to think about how to "get them" with their errors because it makes your life hard, it's not the best plan for building relationships. Your boss likely is already aware and has a plan to eliminate these costs through vendor management at a higher level. Find out.

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