Articles on: Refunds and exchanges

Understanding Returns and Exchanges in Shopify with AfterShip Returns


Overview


This article explains how Shopify handles refunds and returns submitted via AfterShip Returns and the impact on Shopify’s financial and sales reporting. It outlines the workflows for full and partial refunds, as well as the accounting treatment of store credit and exchanges, highlighting how these transactions can cause discrepancies in Shopify’s reports.


Shopify Refunds (Submitted via AfterShip Returns)


When a shopper returns an item and chooses a refund, AfterShip Returns initiates a return flow that aligns well with Shopify's reporting structure.


1.  Full refund/partial refund


When a shopper returns a line item and gets a refund on AfterShip Returns.


A. Before processing a return


I. The original order is under fulfilled status. 
II. Example: The Gross sales and Net sales are $100. The Tax levied on the order is $8.52, making the Total sales $108.52.
III. Shopify will record the total sales of the item in the sales report.





B. Once the return request is created


I. Shopify will update the item status to return in progress, remove the total item quantity, and mark the item value as refund owned on the original item.
II. The item value and tax will be removed from the Shopify sales over time report to ensure that your financial reports accurately reflect only the sales revenue that was not refunded.
III. Example: Suppose a customer purchased $108.52, inclusive of $8.52 tax. The customer decides to return the purchase valued at $100. In this case, since the tax amount will not be refunded ($8.52 - $8.52), the total sales will be $0. 



C. Processing refunds


I. If you process a full-value refund, no value is left on your account.
II. If you process a partial value refund, it means some remaining value is still left on your account.


a. Shopify will automatically create an adjustment entry to account for the remaining value on the customer’s account. This adjustment reflects the fact that the customer has not been refunded the full amount and that there is still a balance left.


b. Example: Suppose a customer made a purchase for $108.52, and you decide to issue a partial refund of $50. This means that the remaining value after the refund is $108.52 - $50 = $58.52. Shopify will generate an adjustment transaction for the remaining value of $58.52 to keep your records accurate.





Accounting discrepancies for store credit and exchanges


Historically, Shopify did not natively support store credit or exchanges during the return process. As a result, AfterShip would create an exchange order or issue a gift card in Shopify when a shopper opted for store credit or an exchange. This process caused Shopify to register the returned item value as a remaining balance, leading to inaccuracies in Shopify’s reporting.


Shopify has released an MVP version of its native exchange feature, and AfterShip is fully integrated. When using the Add item to original order option in the exchange item settings, no accounting discrepancies will occur.


  1. Store credit example


When a shopper chooses store credit:


  • AfterShip Returns generates a gift card equal to the return value.
  • Shopify does not recognize this as a refund, so it leaves the item value as the remaining balance, creating reporting discrepancies.



  1. Exchange (Replace with the same item and Exchange for other items)


When a customer exchanges the product:


  • AfterShip Returns creates a new exchange order.
  • Shopify does not treat this as a refund, so it adds back the return item value (and tax) as a positive adjustment, distorting revenue.



Key takeaways


  1. Refund Process (Full and Partial)


  • Before Return: Shopify logs full order value including tax in sales reports.
  • After Return Request:


a. Item is marked return in progress.
b. Shopify deducts item value and tax from sales reports.


  • Refund Processing:


a. Full Refund: The entire item value is removed from the account.
b. Partial Refund: Shopify generates an adjustment entry for the remaining balance.


  1. Store Credit and Exchange Discrepancies


  • Store Credit: AfterShip issues a gift card, but Shopify does not count this as a refund, causing reporting inaccuracies.
  • Exchanges:


a. A new order is created.
b. Shopify adds the return value back as a positive adjustment, which can distort revenue figures.


  1. Shopify Native Exchange Integration


  • Shopify has introduced a native exchange feature (MVP version), now supported by AfterShip.
  • When using the Add item to original order setting, accounting discrepancies are avoided.


Additional resources



Updated on: 13/06/2025