For purposes of this Guide, you exchange inventory when either:
and no credit is involved in the transaction. That means:
In other words, an exchange occurs when all movement of funds and inventory is accomplished in a single transaction. If the items exchanged are not of equal value, movement of funds can be via bank or cash transaction. If you will owe money to the customer or supplier after the exchange, use a payment form to record the transaction.
Technically, an exchange can be recorded with a receipt or payment, regardless of whether either party to the transaction owes the other money or who owes money to whom. However, your records will be easier to understand if you use a payment form when you owe the other party money.
Conceptually, a customer exchanging inventory is equivalent to you buying back the item(s) the customer originally purchased and selling the new item(s) to the customer. In fact, you could enter two separate transactions. But there is a simpler way that produces identical results.
In the Payments tab and click on New Payment:
On the payment form, list all inventory items the customer is returning and their quantities. Include any tax code that was applied to the original sale.
Next, list all inventory items the customer is buying in the exchange and their quantities. Because you are effectively receiving money for the replacement item(s) rather than paying, enter the replacement quantities as negative numbers. Again, include any applicable tax code.
Click Create to record the exchange.
Brilliant Industries previously sold a ceramic table lamp to Bob’s Hardware on a cash basis. Bob’s Hardware realizes it purchased the wrong product and wants to exchange the lamp for a lamp kit. Because these are wholesale transactions, no tax is assessed on any portion of the transaction.
Prior to the exchange, Brilliant’s Balance Sheet shows 1,000 in Cash on hand and Inventory on hand worth 4,432.53:
Brilliant’s Inventory Items list reveals it owns 18 table lamps and 5 lamp kits:
The payment form is completed as shown below. Note the negative quantity for the replacement item:
Because the returned item is worth more than the replacement item, Brilliant owes Bob’s Hardware 108. When the transaction is complete, the Balance Sheet has been adjusted, showing less Cash on hand and increased Inventory on hand:
Inventory quantities have also been adjusted. Table lamps have increased by 1 and lamp kits have decreased by 1:
If replacement items are worth more than returned items, the customer will owe additional money. This will be shown by a negative total. (A negative payment is the same as a receipt.)
When you exchange inventory with a supplier, you are effectively buying replacement items and selling back the items you originally purchased. The procedure for recording the transaction is basically the sane as the one described above: