Most Etsy refunds are taken from your seller balance as part of Etsy Payouts but occasionally if your seller fund balance does not cover the cost of the refund then Etsy will charge your card or bank account on file directly for the refund amount.
Does Link My Books account for these refunds?
Yes. When a refund is charged to your card or bank account on file Etsy include two transactions in the payout report for the period the refund occurred.
The first transaction is allocated to the category ‘Etsy Refunds - Refunded Principal’ – this may have an extension to it such as ‘Sales shipped to GB’ or ‘Sales shipped outside EU’ depending on where the item was originally shipped to.
If the refund transaction included a credit of Etsy fees these are also accounted for by Link My Books.
The second transaction is allocated to the category ‘Etsy Fees - Etsy Recoupment Fee’.
Importantly, this "Etsy Fees - Etsy Recoupment Fee" amount will be allocated to your chosen Etsy fees account and tax rate, which is "Etsy Fees" and "Reverse Charge Expenses" if you chose to use our default accounts and tax rates.
How do I reconcile the refund charge on my bank account or credit card?
So the refund itself is accounted for in the invoice/journal Link My Books created for the Etsy payout but there are two actions to take to reconcile both the deposit from Etsy covering the payout containing the refund and the charge to your bank account directly for the refund.
Firstly you will reconcile the amount received into your bank account for the full payout value against the invoice/journal entry created by Link My Books for that payout as normal.
Secondly, to account for the refund charged directly to your bank account you will need to create an expense transaction and assign that to your Etsy Fees account, and ensure that it has the same Reverse Charge Expenses tax rate is selected (if you use the Link My Books default accounts and tax rates). It may be useful for audit purposes, to note on the expense transaction that it is part of a payout and note the payout ID.
This will ensure everything is where it should be, all accounted for and both the payout amount and refund charge have been reconciled.