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Nicholas4
October 1, 2020
Question

Determining Correct date to record refund

  • October 1, 2020
  • 1 reply
  • 3 views

A customer returned an item in Dec 2019. It had been paid for by a third party bank with a transfer directly into my bank account, so instead of issuing them a refund check at that time, the bank needed to process everything and then took the refund money back out of my bank account in Jan 2020. I am not sure what date to record this transaction so it is done properly according to the accrual accounting standards. Also I started using quickbooks in Jan, so needed to enter the starting balances for all my accounts. If I am recording this refund in Dec 2019, would I then need to exclude the Jan 2020 bank transaction and just subtract this amount from the bank account starting balance? Or would I need to create some kind of refunds receivable account and have this be the starting balance?

1 reply

john-pero
john-pero
Level 12
October 5, 2020

Your last sentence is correct. You issue the refund as a customer credit memo, which reduces your 2019 income and puts the amount on the books as an other current asset. 

 

Open the c.m. and there will or should be an option to issue refund. Do that with the January 2020 date

 

Customer>New Transaction>Credit Memo

 

Use same account as original sale, or any appropriate expense account. This refund is expense or contra-income.

 

The procedure is exactly the same for cash accounting, only the reporting is different. Under cash rules the change to net income does not happen until january

N
Nicholas4Author
October 5, 2020

I am not sure I fully understand. I have included the timeline below along with the journal entries.

 

1) Customer buys item on credit and a third party will do a bank transfer to pay for it.

12/1/19          Accounts Receivable                    $1,000

                                      Sales                                                                 $1,000

 

2) I receive the bank transfer from the third party.

12/10/19       Cash                                                $1,000

                                     Accounts Receivable                                     $1,000

 

3) I approve a refund to the customer and am waiting for the third party to do another bank transfer to credit my bank account. The journal entry credit account is what I am not 100% sure about. I am leaning towards crediting the liability account below, but when I enter a credit memo, it credits my accounts receivable account instead. This would make sense if I was simply using this credit to lower their overall A/R balance due, but since they have no A/R balance due and the third party will be doing a bank transfer to credit my bank account, then I would think I would need to create a liability for this instead?

12/20/19       Sales Returns (Contra Revenue)  $1,000

                                      Refunds Payable (Liability)                        $1,000

 

Thanks!

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