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Anonymous
Not applicable

Record a security deposit refund to client

Hi

 

My business takes security deposits from clients against potential damage caused during events. If no damage is caused, I refund that security deposit in full after the event. During a live chat with QB, I was told that to record that refund I should:

 

  • create a refund receipt payable from our current account with the product 'Security Deposit' (an other current liabilities account I use for security deposits); and
  • create an expense, choosing Debtors as the category.

When I do that, the customer transaction list shows:

 

  • Invoice £1000
  • Expense £1000
  • Refund (£1,000)
  • Balance £1,000

Is this correct. I would expect the customer transaction list to show a zero balance after the refund. Should I delete the expense and just rely on the refund receipt? I have checked the Security Deposits account and it does show a decrease of £1,000 if I issue a refund receipt but do not create an expense.

 

Any help would be much appreciated! Thank you.

16 REPLIES 16
Established Community Backer ***

Re: Record a security deposit refund to client

If you are issuing a cheque for the refund there should only be a cheque with the deposit item as detail. 

 

If you are applying the deposit to their open balance create a customer credit memo that records only the reduction in deposit and apply the c.m to their invoice. 

 

There is no expense to you in refunding the deposit since it was never income. The rep may have meant use the "expense" screen to record the transzction

QuickBooks Team

Re: Record a security deposit refund to client

Hello PH2019,

 

The correct steps to record a refund are as follows:

 

1. Create a credit note, reflect the original invoice using the same account, same amount and same VAT code.

 

2. Create an expense - Select the customer and the account you paid the refund from. Select Debtors as the category and enter the whole amount using No VAT as the code. 

 

3. Link the two together by going to '+' and then Receive Payment. Once you select the customer, the expense and credit note should show to tick.

 

Are these the steps you were given by the agent?

 

Thanks,

 

Talia

Established Community Backer ***

Re: Record a security deposit refund to client


@TaliaI wrote:

Hello PH2019,

 

The correct steps to record a refund are as follows:

 

1. Create a credit note, reflect the original invoice using the same account, same amount and same VAT code.

 

2. Create an expense - Select the customer and the account you paid the refund from. Select Debtors as the category and enter the whole amount using No VAT as the code. 

 

3. Link the two together by going to '+' and then Receive Payment. Once you select the customer, the expense and credit note should show to tick.

 

Are these the steps you were given by the agent?

 

Thanks,

 

Talia


In receiving an original Security Deposit as a Current Liability there should have been no VAT affect. DO you pay VAT when you borrow money from Barclays or RBS? I think not.  The received security deposit  (as described by @Anonymous ) is sitting as a current liability. All that is required is to liquidate the current liability - do you have to code VAT as "no VAT" when you pay principal on a loan? Strange system you have if you do. IN any event the current liability is already sitting on the books. You are suggesting too many steps. 

 

And it all depends on whether A. a cheque is to be cut or B. if the deposit is to be applied to the customer balance.

 

So I will repeat

 

A. create a cheque the detail debits Security Deposit current liability

B.  1. create credit note > debiting the Security Deposit current liability

      2. apply credit note to customer balance whilst receiving other payment(s)

 

Life is too short for any steps 3 and 4 

 

 

Anonymous
Not applicable

Re: Record a security deposit refund to client

Thank you both for your help.

 

I remain a little confused by the Balance column for the customer. I was advised by QB to create a refund receipt and also an expense, but nothing about linking them together. Without taking step 3 suggested by @Talial, I now have the entries for the customer as set out in the attached screenshot. The Total column shows a zero balance, but the Balance column shows £2,000. Is that correct?

 

As before, any help would be very gratefully received.

QuickBooks Team

Re: Record a security deposit refund to client

Hi PH2019

 

When you use a refund receipt to refund a customer you do not need to create an additional expense.

If you have created an invoice and received payment for the invoice and then you are returning the amount to the customer you would simply create the refund receipt, ensuring you enter in the Refund From column the bank account you refunded your customer from and in the PRODUCT/SERVICE column you enter the same product service as in the original invoice.

If you do the above steps and only have an invoice, invoice payment and refund listed in your customer transaction list the open and overdue amount should be zero.

Established Community Backer ***

Re: Record a security deposit refund to client


@John C wrote:

Hi PH2019

 

When you use a refund receipt to refund a customer you do not need to create an additional expense.

If you have created an invoice and received payment for the invoice and then you are returning the amount to the customer you would simply create the refund receipt, ensuring you enter in the Refund From column the bank account you refunded your customer from and in the PRODUCT/SERVICE column you enter the same product service as in the original invoice.

If you do the above steps and only have an invoice, invoice payment and refund listed in your customer transaction list the open and overdue amount should be zero.


This simplified procedure ignores GST and/or inventory. Those two reasons are reason enough to consider creating the credit note as part of the sequence.

 

As far as expense. you ARE creating an expense by reducing income in the refund. Semantics but is the same. ContraIncome (negative income) = Expense. Above the line, below the line> bottom line the same.

 

But in the poster's situation there is no expense since it is a return of a security deposit which was never income. Using the "Expense" screen to record outflow of cash or application of same towards something else does not make it an 'expense', only an expenditure so don't confuse instructions to use the Expense rather than Cheque screen to record money out. The Cheque screen can only deduct from bank type accounts whereas the Expense screen can deduct from not only bank but also current asset accounts.

QuickBooks Team

Re: Record a security deposit refund to client

Hi john-pero

 

When you create a refund receipt, in the UK product, it will take into account the inventory/product service by crediting it back to your quantity on hand and also accounting for the VAT, decreasing the amount in the VAT control account, there is no need to create a separate expense.

Established Community Backer ***

Re: Record a security deposit refund to client


@John C wrote:

Hi john-pero

 

When you create a refund receipt, in the UK product, it will take into account the inventory/product service by crediting it back to your quantity on hand and also accounting for the VAT, decreasing the amount in the VAT control account, there is no need to create a separate expense.


The only difference that I can see between a Refund Receipt type transaction and an Expense type transaction is that in the former you can only use an Item, while in the latter you can use either an Item or post directly to an Account (or Category as they call it)

Anonymous
Not applicable

Re: Record a security deposit refund to client

Thank you all.

 

Just to clarify, I am using UK QB Online.

 

If I issue a Refund Receipt, but no associated expense, there are two possible consequences:

 

1. if I invoiced the security deposit in advance of payment, then later receive payment, I am shown a zero balance against the customer transaction list. If I then issue a refund, I am left with a negative balance equal to the refund amount. If I create an expense to Debtors, that expense offsets the negative balance, leaving zero.

 

2. If payment was received without issuing an invoice, I issue a Sales Receipt for that security deposit. I then only have a positive balance equal to the security deposit. Issuing a Refund Receipt then creates a zero balance (as no separate entry is made for payment being received). If I also create an expense to Debtors, I am left with a negative balance equal to the expense.

 

Any further help would be gratefully received. I am struggling to reconcile these results in the different scenarios.

QuickBooks Team

Re: Record a security deposit refund to client

Hello,

 

Using the refund receipt, the steps are as follows: 1. Create the invoice. 2. Receive Payment. - The balance for the customer will be at 0. 3. You will then create the refund receipt for the same amount - after saving this the customer balance should stay at 0.

 

Did you follow the above steps? If so, and your customer still shows a balance, please send us a screenshot (of course cutting out any confidential information) of the customer's transaction list so we can look into this further.

 

Thanks,

 

Talia

Established Community Backer ***

Re: Record a security deposit refund to client

And just to clarify.

 

A Security Deposit is never income unless it has been forfeited by the payee against damages or non performance.

 

A Security Deposit received in  a Sales Receipt or billed on an Invoice is pisted as a Current Liability - never as income. Returning a deposit is like paying off a loan , reduction in liability - absolutely NOT an expense. There is never an expense associated with a SD refund. DO NOT create any. That advice from reps is bogus. 

 

Other than reduction of liability to zero a SD the only other action could be a conversion of some of the SD to INCOME to cover outstanding charges such as damages or unpaid rent. 

 

The conversion of a portion of SD to income in order to pay a customer invoice or charge is a different story and if I recall not what was specifically asked although if asked I will address it

Anonymous
Not applicable

Re: Record a security deposit refund to client

Thank you both.

 

@john-pero - yes, I post a security deposit (SD) received to an"other current liabilities" account and also refund amounts from that account. I understand that deductions from SD would be dealt with differently.

 

@TaliaI - two screenshots are attached (one to this post, the other to the next post). One shows the situation where I (1) invoiced SD, (2) received payment and (3) subsequently refunded the full amount. The second screenshot shows where an SD was paid by a client before I invoiced it, so I (1) issued a sales receipt and (2) refunded that amount in full using a refund receipt.

Anonymous
Not applicable

Re: Record a security deposit refund to client

Screenshot 2 attached

QuickBooks Team

Re: Record a security deposit refund to client

Hello,

 

On the first situation - is the customer balance displayed in the top right hand corner 0? Or is that also displaying as £2000?

 

Thanks,

 

Talia

Anonymous
Not applicable

Re: Record a security deposit refund to client

Hi @TaliaI 

 

A full screenshot is attached - does this help?

Established Community Backer ***

Re: Record a security deposit refund to client

@Anonymous 

 

As was said at the beginning of an American sci-fi show from the 60's

 

There is nothing wrong with your television set. Do not attempt to adjust the picture. We are controlling transmission. If we wish to make it louder, we will bring up the volume. If we wish to make it softer, we will tune it to a whisper. We will control the horizontal. We will control the vertical. We can roll the image, make it flutter. We can change the focus to a soft blur or sharpen it to crystal clarity. For the next hour, sit quietly and we will control all that you see and hear. We repeat: there is nothing wrong with your television set. You are about to participate in a great adventure. You are about to experience the awe and mystery which reaches from the inner mind to – The Outer Limits.

 

To paraphrase > nothing is wrong with what you see. What you see is not what you think you see. This is not a ledger but a report of all transaction activity. You can tell that all transactions are correct because your open balance is 0. There is nothing you can or should do to make it look any different to you.