About
Applies to: Finaloop Core, InventoryIQ
Recording a tariff refund from your supplier, carrier, or customs authority correctly in Finaloop keeps your inventory values, cost of goods sold (COGS), and financial statements accurate.
The correct treatment depends on:
Which COGS tracking method you're using.
Whether the related inventory has already been sold.
When the related inventory was purchased.
This guide walks you through the recommended approach for each scenario. Choose the section that matches your COGS tracking method (Purchase based, Sales based or InventoryIQ, Finaloop's inventory management product) and follow the instructions for your scenario.
Before you begin: Check the refund vendor
The vendor name shown on the bank transaction for the refund may not automatically match the vendor originally used for payment. For example, the refund may appear as coming from the U.S. Treasury, while the original tariff was recorded under U.S. Customs and Border Protection.
When categorizing the refund, go to the refund transaction on your Transactions page to ensure the vendor is the same vendor that was used for the original tariff cost. This ensures the refund is applied against the same vendor balance.
Purchase-based COGS
With the purchase-based COGS method, duties and tariffs are recorded directly to COGS when they're incurred. Because the original tariff expense has already impacted your P&L, the refund should reduce that expense.
Recommended treatment
Find the refund transaction on your Transactions page.
Confirm that the vendor matches the vendor used for the original tariff cost.
Click the transaction's category tag to open the Categorize transaction window. In Category, select Refund.
① Category set to Refund, ② Next.
Click Next.
Select Other cost of sales.
Click Apply once.
① Other cost of sales, ② Apply once.
This offsets the original tariff expense and reduces your costs in the Cost of delivery section of your Profit & Loss. The refund shows under Other cost of delivery, while the original tariff sits in Product COGS.
Tip: Record the refund as Other cost of sales rather than adjusting Inventory. Since tariff refunds are typically one-time adjustments, recording them separately avoids distorting your ongoing inventory costs and gross margin calculations.
Sales-based COGS
With the sales-based COGS method, the correct treatment depends on whether the related inventory has already been sold.
If all of the inventory has been sold
The tariff has already been recognized in COGS. Because the original tariff expense has already impacted your P&L, the refund should reduce that expense.
Follow the steps in Purchase-based COGS: categorize the refund as Refund, click Next, select Other cost of sales and click Apply once. This offsets the original tariff expense and reduces COGS on your P&L.
If none of the inventory has been sold
The tariff is still included in your inventory value on the Balance Sheet. Because it has not yet affected your P&L, apply the refund as an inventory adjustment.
Recommended treatment
Find the refund transaction on your Transactions page.
Confirm that the vendor matches the vendor used for the original tariff cost.
Click the transaction's category tag and, in Category, select Refund.
Click Next.
Select Inventory/COGS.
Click Next.
Scroll down to Other inventory indirect costs and select Inventory duties and tax.
① Other inventory indirect costs, ② Inventory duties and tax, ③ Next.
Click Next.
In the Categorize transaction window, click Apply once.
Update the landed cost per unit
After recording the refund, recalculate the landed cost (the full cost of getting a product to your warehouse, including shipping, duties and fees) per unit for the affected inventory using the cost after the refund.
Update the cost per unit in Finaloop so the value assigned to each unit reflects the reduced amount: go to Products (Inventory → Products), open the product, click the Cost per unit tab, click Add cost, enter the From date and the new Cost per unit, and click Save. For how to work out the new cost, see How to calculate your landed cost per unit.
This reduces the inventory value without impacting your P&L.
Practical alternative if recalculating unit costs is not feasible
If recalculating and updating the costs per unit is not feasible, you may record the full refund as Other cost of sales. Use this approach only if you expect all the related inventory to be sold or disposed of during the current fiscal year (see If all of the inventory has been sold).
Across the full year, your total COGS and gross margin will be accurate once all the related inventory has been sold. However:
The refund lands in the month you categorize it, not in the months the inventory sold, so single months can show distorted COGS and margins.
SKU-level margins will not reflect the tariff refund correctly.
Inventory may be overstated if related units remain on hand at year-end.
If a material amount of the related inventory is expected to remain in stock at year-end, we recommend updating the cost per unit as described under Update the landed cost per unit.
If some of the inventory has been sold and some is still in stock
The tariff has affected both:
COGS on the P&L for the inventory that has already been sold.
Inventory on the Balance Sheet for the units that remain in stock.
Split the refund so that part reduces COGS and part reduces the remaining inventory value.
Split the refund
Find the refund transaction on your Transactions page.
Confirm that the vendor matches the vendor used for the original tariff cost.
Click the transaction's category tag to open the Categorize transaction window, then click More actions.
Select Split, then click Next.
Next to Split by, switch to percent. The columns change to Amount % and Amount $.
In the Category column, select Refund for both parts of the transaction.
Under Amount %, split the refund based on the portion of the original tariff cost related to inventory already sold and inventory still on hand.
Click Next.
① Split by set to percent, ② the two Refund lines with their Amount %, ③ Next.
Categorize each part
For the portion related to sold inventory, select Review.
Select Other cost of sales, then click Apply once.
For the portion related to inventory still on hand, select Review.
Select Inventory/COGS, then click Next.
Scroll to Other inventory indirect costs and select Inventory duties and tax.
Click Next and then click Apply once.
When both portions are complete, click Done.
① The two completed parts, ② Done.
This ensures both your inventory value and COGS remain accurate.
Tip: Although you can categorize both portions to Inventory/COGS → Inventory duties and tax and change the sold portion later on Inventory purchases with Actions → Change accounting treatment, recording the sold portion directly to Other cost of sales is simpler and keeps your ongoing COGS calculations clean.
Update the landed cost per unit
After recording the refund, recalculate the landed cost per unit for the unsold portion of the inventory, and add it as a new cost on the product's Cost per unit tab (see If none of the inventory has been sold). For how to work out the new cost, see How to calculate your landed cost per unit.
Practical alternative if recalculating unit costs is not feasible
If recalculating and updating the costs per unit is too difficult, you may record the full refund as Other cost of sales, with the same limits described under If none of the inventory has been sold. Use this approach only if you expect all the related inventory to be sold or disposed of during the current fiscal year.
InventoryIQ
The appropriate InventoryIQ treatment depends on when the related inventory was purchased.
If you're using InventoryIQ, update the tariff cost on the purchase order or shipment where you recorded it. The landed cost of the units will automatically update, adjusting both the COGS on the P&L and the Inventory on the Balance Sheet.
If the related inventory was purchased this year
Update the original purchase order or shipment where the tariff cost was recorded.
Recommended treatment
In the sidebar, click Inventory → Supply chain, then open the Purchase orders or Shipments tab.
Open the relevant purchase order or shipment, depending on where the original tariff cost was recorded.
Under Indirect costs, edit the Duties and tax amount to reflect the amount after the refund.
Click Save.
Categorize the refund transaction on the Transactions page as Refund → Inventory/COGS → Inventory duties and tax, with the same vendor as the original tariff, and click Apply once. This applies the refund against that vendor's balance, so the refund isn't counted twice.
① Indirect costs, ② the Duties and tax amount.
InventoryIQ will automatically recalculate:
Landed costs.
Inventory values.
COGS.
SKU-level margins.
To learn more about allocating shipping costs, review Managing your Shipments & Receipts.
If the refund covers too many purchase orders or shipments
A single tariff refund may relate to many purchase orders or shipments, making it impractical to update every record individually.
If you expect all the related inventory to be sold or disposed of during the current fiscal year, you may instead categorize the transaction as Refund → Other cost of sales (follow the steps in Purchase-based COGS).
This provides a practical adjustment, ensuring your COGS are updated for the full year. However:
COGS and margins may be inaccurate on a month-to-month basis.
The refund will not be assigned to the affected SKUs.
SKU-level margins may remain understated.
Inventory may remain overstated if related units are still on hand at year-end.
If material inventory is expected to remain on hand, this option is not recommended.
If the related inventory was purchased in a previous year
Do not edit the original prior-year purchase orders or shipments, even if your prior-year books in Finaloop are still open. The refund is a current-year event, and editing prior-year records would retroactively change historical landed costs, inventory, and COGS.
Editing them may also move a refund recognized this year back into the prior accounting year, so talk to your accountant first if you think you need to. Instead, categorize the refund as Refund → Other cost of sales (follow the steps in Purchase-based COGS).
This records the adjustment in the current year without changing previously closed inventory records.
Use this treatment when the related inventory has already been sold or is expected to be sold or disposed of during the current year.
Important: If a material portion of the related inventory will remain on hand at the end of the current year, recording the full refund as Other cost of sales may leave Inventory overstated. Contact Finaloop Support or your accountant to determine whether part of the refund should instead reduce Inventory.
FAQs
Why shouldn't I reduce Inventory for every tariff refund?
Whether the refund should reduce Inventory or COGS depends on whether the related inventory has already been sold. If the inventory has already been sold, reducing Inventory would understate your assets and leave COGS overstated.
Why do you recommend using Other cost of sales?
When the related inventory has already been sold, the original tariff cost is already sitting in COGS. Recording the refund to Other cost of sales offsets the cost in the same section of the P&L where it was recognized (Cost of delivery), so your gross margin reflects the true net cost of the goods. It also keeps the refund visible as a distinct line rather than blending it into your regular product costs.
When the related inventory has not been sold, the tariff is still part of inventory value on the Balance Sheet so the refund should reduce inventory, not COGS. That's why the treatment depends on sales status rather than being the same for every refund.
How do I know whether the inventory has already been sold?
Review the related inventory or shipment to determine whether the units covered by the tariff refund have already been recognized as COGS. If only part of the inventory has been sold, split the refund between the sold and unsold portions.
What if my refund includes interest?
Customs refunds can include interest in the same payment. Interest isn't a refund of your tariff cost, so split it out: use More actions → Split (as in Split the refund), categorize the tariff part as described for your method, and categorize the interest part as Interest income.
Why does the refund vendor need to match the original vendor?
Using the same vendor ensures the refund offsets the same vendor balance as the original tariff cost.
The sender shown on the bank transaction may be different. For example, a refund may appear under the U.S. Treasury even though the original tariff was recorded under U.S. Customs and Border Protection.
Review the original tariff transaction and use the same vendor record in Finaloop.
Why can the full-year figures be accurate while monthly figures are not?
When the entire refund is recorded as Other cost of sales, the benefit is recognized in the month in which the refund is categorized.
The original tariff cost may have flowed through COGS across several different months as the inventory was sold. As a result, total full-year COGS can be accurate after all related inventory is sold, while individual months may show distorted margins.
What if I'm not sure which COGS tracking method I'm using?
In the sidebar, click Inventory, then click Inventory settings (top right). Your method is shown on the General tab under COGS tracking method.
If you're unsure how to apply the refund or whether related inventory remains on hand, contact Finaloop Support before categorizing the transaction.
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Need help?
If you're unsure how to record a refund, reach out to us at [email protected]. We're here to help.