I notice that cancelled orders show a negative cost of goods. I don’t believe there is a counter-order to offset this and the cost of a cancelled order should be zero. We had some large cancellations in a recent month and I believe this caused gross income to be significantly overstated (and subsequently net income, leading to a larger tax burden for our S-Corp partners). Correct me if I am wrong.
To elaborate further, I am referring to the OOTB Cost of Goods Sold detail report, which I assume rolls up to COGS on the summary sales reports. From an inventory value perspective, reversing the cost makes sense. But this is a sales report. If you sell x at a cost of $100 and it is returned, the net cost of the transaction is $0. But the report shows the negative cost value. This does not make sense to me and further, if my supposition about the roll-up is correct, it does create an accounting, and by extension, income tax problem. Should I be looking at some different reports?
This reporting concern also applies to any order with partial returns or exchanges.