Shopify, A2x and Gift Vouchers – are Sales and GST double counted?

If you are an eCommerce store owner that uses Shopify Gift Vouchers, you have probably noticed that there are two ways that gift vouchers can be issued by Shopify:

1. Gift vouchers are sold to customers to use in the future. With this method, the customer chooses a gift voucher and pays for it in the check out process.
2. Gift vouchers are manually issued to customers as a credit note for returned goods, or perhaps given out as donations or as an apology for a delayed shipment or poor customer service.

A very astute eCommerce client was concerned about the A2x/Shopify treatment of gift vouchers that were issued using the second method – where gift vouchers are manually issued. She was concerned that sales and GST were being counted twice in situations where a sale was booked, goods were returned and a manual gift card issued, and then the gift voucher was redeemed in a second sale in the future.

After meeting and considering the issue, we worked out she was correct. Here is what happens when gift vouchers are manually issued:

1. A gift voucher is created through Shopify using Products | Gift Cards | Issue Gift Card. No sale or payment is recorded in Shopify, and as a result, no A2x sale is posted to Xero.
2. The gift card is registered in Shopify, and shows up as an addition when gift cards are exported from Shopify to show all issued and the value owing.
3. When the gift card is redeemed, a sale is recorded in Shopify, payment method used is gift card, and A2x syncs over an increase in sale, an increase in GST collected, and a decrease to gift card liability to Xero.

So how can we get our data in Xero to show correctly, i.e reflect only the net result of the original sale, less refund issued, plus new sale? Here is a workaround we suggest:

1. Remember, this workaround only applies to manual gift vouchers, if the gift voucher is issued for consideration through a shopping cart, A2x will work correctly. When a gift card is redeemed, A2x will also work correctly and reduce the liability.
2. When issuing a new gift card, use the Notes area to use a one word description such as “return”, “donation”, “thank-you”. If this is a return, don’t forget to manually increase your inventory so the correct quantity is in stock (if you will be reselling the item)

1. Once a month, export all gift cards to Excel using the Shopify export function (products | gift cards | export all)
2. Put a filter on the export to show only gift cards with no order numbers – if the gift card was sold through a shopping cart for consideration, there will be an order number assigned and A2x will work correctly.
3. Filter the gift cards to show only the month being worked on.
4. Filter the gift cards to subtotal by reason code and subtotal the value issued.
5. Raise a manual journal in Xero – which will look something like this:
   1. Dr Sales (or returned sales) x (your sale will have to have a GST on income code assigned as the tax type, to reduce the double counting of GST)
   2. Cr Gift Card liability x

The other thing we discovered is if an app is installed in Shopify such as Rise.ai (a gift card and loyalty app) it works by creating a manual gift card each time a return is processed. So A2x will not map any of these transactions correctly either. Unfortunately, GST and sales will be double counted.

What if I use discount codes in Shopify instead?

If you use discount codes, the Sales and GST as mapped by A2x will work perfectly. The problem with discount codes when issuing for a return, or a thank you, is that they cannot be tracked easily and can expire. So there is no way to run a report to identify what the future “liability” of the business if you use discount codes. These codes are really meant to be used for one off promotions in your store.

Another solution – Shopify Exchange Credit

If you have the Shopify POS feature installed you can use the ‘exchange for store credit’ feature. This works perfectly in that a sale is refunded (and the other side is the exchange credit voucher) and automatically Shopify creates a gift voucher to use in the future. The accounting journal that is created in Xero is to reduce sales, and GST collected, and increase gift voucher liability.

The main takeaway from this article is to ensure you are not issuing gift cards manually for sales refunds as this can cause a double up in Sales and GST collected.

Any further questions? Give us a call on 0426625683 to discuss why an eCommerce business needs an eCommerce accountant.