If a refund is issued on a sale in an Etsy shop, is that sale omitted from Income, or included and then deducted as an expense?

shazen27 — Thu, 06 Jun 2019 15:49:37 GMT

It depends whether you use the cash method or the accrual...

Coleen3 — Thu, 06 Jun 2019 15:49:39 GMT

It depends whether you use the cash method or the accrual method. You probably use the cash method in which case, the income and refund cancel each other out.

Most taxpayers are cash basis taxpayers.

Under the cash basis method you include income you actually or constructively receive during the year and deduct expenses for your business in the year you actually pay them

In accrual accounting, you report income in the tax year that you earned it, even if you don't collect payment until the following year. The accrual method of accounting is often used by larger businesses that carry inventory or offer credit.

This also applies with expenses. Under accrual accounting you deduct expenses when you incur them. Let's say you received office supplies in 2017 but didn't pay for them until 2017. You'd deduct the expenses in 2017, the year you were able to start using the supplies.

Cash

Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. Items of income include money received as well as property or services received.

Constructive receipt. Income is constructively received when an amount is credited to your account or made available to you without restriction. You do not need to have possession of the income for it to be treated as income for the tax year.

Accrual

Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred.

**The cash method of accounting is focused on the inflows and outflows of cash. Much like your personal finances, organizations have revenue when we make a deposit and incur an expense when we cut a check. There is little regard to when the revenue was actually earned or the expense was actually incurred, we just worry about the cash flows.

The accrual method of accounting doesn't worry about cash flow and instead focuses on when revenue was actually earned and when expenses where actually incurred. For example, let's say you purchase office supplies in the month of April on your credit card and pay for the purchase in May when you receive the credit card bill. Under the accrual method of accounting we would record the expense for supplies in April.

**The main difference between accrual and cash basis accounting is the timing of when revenue and expenses are recognized. The cash method is most used by small businesses and for personal finances. The cash method accounts for revenue only when the money is received and for expenses only when the money is paid out. On the other hand, the accrual method accounts for revenue when it is earned and expenses goods and services when they are incurred. The revenue is recorded even if cash has not been received or if expenses have been incurred but no cash has been paid. Accrual accounting is the most common method used by businesses.

topic If a refund is issued on a sale in an Etsy shop, is that sale omitted from Income, or included and then deducted as an expense? in Deductions & credits

If a refund is issued on a sale in an Etsy shop, is that sale omitted from Income, or included and then deducted as an expense?

It depends whether you use the cash method or the accrual...