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Returned Goods

If you are maintaining stock values in the Nominal Ledger, two complications can arise when a Customer returns an Item:
  1. On some occasions the goods will be returned to stock, but on other occasions they may not be. For example, the goods may be damaged and so you in turn will need to return them to your Supplier.

  2. The correct stock value of the returned Item can be difficult to calculate.
To help alleviate these complications, the Cost Accounting setting contains several options that you can use to control how Items will be received back into stock:
  • If you are using a Queued Cost Model, returned Items can go back to their original positions in the FIFO/LIFO queue, or they can go to new positions, as if they were newly received Items;

  • You can choose whether to retain the original stock value of a returned Item (to copy it from Deliveries to Returned Goods records) or to use the standard Cost Price of Items in Returned Goods records; and

  • You can choose whether the Weighted Average value of Items will be updated by Returned Goods.
These options are described in more detail on the pages describing the Cost Accounting setting.

Depending on the situation, several courses of action are available for you to follow, to help ensure that an accurate stock valuation is maintained when a Customer returns an Item to you. These are now described.

Using a Returned Goods record to receive a Returned Item back into stock

If an Item being returned was originally issued on a Delivery raised from a Sales Order, you must receive it back into stock using a Returned Goods record. To create the Returned Goods record, open the Delivery and select 'Returned Goods' from the Create menu.

If you need to bring the Item back into stock, ensure the Update Stock box in the Returned Goods record is ticked (it will be ticked by default). When you mark the Returned Goods record as OK and save, this will mean that stock levels will be updated, as will stock valuations in the Nominal Ledger (if so specified in the Sub Systems setting in the Nominal Ledger and in the Number Series - Returned Goods setting). The Item will be brought back into stock in a way that obeys the Original Cost on Returned Goods and Insert as New Item/at Original Position options in the Cost Accounting setting.

The Returned Item will be received into the same Location from which it was issued, unless you have specified a Default Return Location in the Local Machine setting in the User Settings module. If so, it will be received into that Location. This option is useful if you only have a single Location into which you receive Returned Items. Note that the Local Machine setting is specific to the client machine you are working on and therefore if you need to use the Default Return Location feature you should specify it in the Local Machine setting separately on each client machine.

As a general rule, you must raise an Invoice for the original Delivery before creating the Returned Goods record, and you must create a Credit Note for its return. This is the case even if the Customer cancels the order and doesn't require a replacement Item or an Invoice. If you do issue a replacement by creating another Delivery from the Order, you should then raise a new Invoice. Following this general rule is particularly important if you have specified in the Cost Accounting setting that cost of sales postings will be made from Invoices or from Invoices with Accruals from Deliveries. This is because reversed cost of sales postings will be made from Returned Goods records, so it will be easy for the Nominal Ledger stock valuation to become inaccurate if, for example, a Customer returns an Item for which you have not yet raised an Invoice and then cancels the order.

You can create a Credit Note for the return using the 'Credit Note' function on the Create menu of the Returned Goods record, or using the 'Credit Note' function on the Create menu of the original Invoice.

As already mentioned, you must receive an Item back into stock using a Returned Goods record: you cannot do so from a Credit Note. If you try to do so by ticking the Update Stock check box on the 'Del. Terms' card of a Credit Note, you will then not be able to save the Credit Note. Instead, the message "Not allowed to update Stock from this Credit Note. Create Returned Goods to update Stock" will appear.

Using a Credit Note to receive a Returned Item back into stock

If an Item being returned was originally issued using an Invoice (i.e. there is no connected Sales Order or Delivery), you can receive it back into stock using a Credit Note (described here), or you can do so using a Goods Receipt (described later on this page).

If you need to bring the Item back into stock, ensure the Update Stock box on the 'Del. Terms' card is ticked. When you mark the Credit Note as OK and save, this will mean that stock levels will be updated, as will stock valuations in the Nominal Ledger (if so specified in the Sub Systems setting in the Nominal Ledger and in the Number Series - Invoices setting). The Item will be brought back into stock in a way that obeys the Original Cost on Returned Goods and Insert as New Item/at Original Position options in the Cost Accounting setting.

The Returned Item will be received into the same Location from which it was issued, unless you have specified a Default Return Location in the Local Machine setting in the User Settings module. If so, this will be used as the default Location in Credit Notes and so the Item will be received into that Location. This option is useful if you only have a single Location into which you receive Returned Items. Note that the Local Machine setting is specific to the client machine you are working on and therefore if you need to use the Default Return Location feature you should specify it in the Local Machine setting separately on each client machine.

You can create a Credit Note to bring an Item back into stock using the following methods:

  1. The recommended method is to create the Credit Note by opening the Invoice and selecting 'Credit Note' from the Create menu.

  2. You can also create the Credit Note by duplicating the Invoice and changing the Payment Term to one whose Type is "Credit Note" and entering the number of the Invoice to be credited in the "Credit of Invoice" row.

  3. You can create the Credit Note from scratch, again specifying a Payment Term whose Type is "Credit Note" and entering the number of the Invoice to be credited in the "Credit of Invoice" row.
In the first case, the Cred. Row field in each row in the Credit Note (on flip F) will contain a value that connects that row to a row in the Invoice being credited. For example, the Cred. Row field will contain "0" when referring to row 1 in the Invoice being credited, while it will contain "1" when referring to row 2 in the Invoice being credited, and so on.

The Cred. Row field ensures the Item will be brought back into stock in a way that obeys the Original Cost on Returned Goods and Insert as New Item/at Original Position options in the Cost Accounting setting. Without the Cred. Row field, it would not be possible to ascertain the original cost or position. Because of this, you will not be able to save a Credit Note if you have ticked the Update Stock box in a Credit Note, you have connected the Credit Note to a previous Invoice and if there is at one row in which the Cred. Row field is empty. When you try to save the Credit Note, the message "Too high quantity" will appear.

In the second and third cases, the Cred. Row field in each row in the Credit Note will not be filled automatically, so you will need to enter the row numbers yourself to connect the rows in the Credit Note to the corresponding rows in the Invoice. Again, enter "0" to refer to row 1 in the Invoice being credited, enter "1" to refer to row 2 in the Invoice being credited, and so on.

If a Credit Note will update stock but is not crediting a particular Invoice (i.e. you have not specified an Invoice to be credited in the "Credit of Invoice" row), then you can leave the Cred. Row field empty in each row. The Items will be brought into stock as new items in the FIFO/LIFO Queue, and the cost will be the Cost Price from each Item record.

If you would like the Update Stock box to be ticked by default in Credit Notes, select the Credit Invoices Update Stock option in the Optional Features setting in the System module. But be careful when using this option. You will need to remember to untick the Update Stock box in a Credit Note if no return to stock is involved (e.g. in a Credit Note that you issue to correct a pricing error). You will also need to untick it in a Credit Note where the Item being returned was originally issued on a Delivery raised from a Sales Order. In this case you must return the Item to stock using a Returned Goods record, as described in the previous section.

Using a Goods Receipt to receive a Returned Item back into stock

If an Item being returned was originally issued using an Invoice (i.e. there is no connected Sales Order or Delivery), you can receive it back into stock using a Credit Note (described earlier on this page), or you can do so using a Goods Receipt (described here).