Refund expense

Hi Im busy capturing the bank statement for a law firm and the company refunded some client back they haven’t done proper bookkeeping when they started so I started doing that how do I record refund I have checked some topics put it does not explain when a business pays back refund to a customer using bank account

Use credit notes for customer returns and refunds if this repayment is meant to affect the P & L account

You could also make a payment straight to the customer’s account receivable from the bank account. This will not affect your P & L account

the only information i have is the refund that the owner made from that bank statement I dont know what was the initial amount on the invoice

Then the only question is was the refund included in the P & L account in the previous year or should it be included in the P & L account for this year?

Was it in the customer’s balance or not at the end of the last year?

yes it was not do I create a refund account ?

Sorry - your answer is a bit ambiguous as my question was not as clear as it should have been.
I’ll rephrase it

Was the refund included as a reduction in income or an increase in expenses in last year’s P & L?

as a deduction in the bank statement

Yes, I understand that side of the transaction - but what account was the refund posted to - it was either posted to an income account as a negative amount, to an expense account as an expense or to an asset account such as Account Receivables/Customer to increase the customer’s balance

I haven’t Posted it thats were im struggling now

If the bank transaction is in the current year, then you can just post it to the customer account.

That way it won’t affect this year’s P & L account

@Angela_Tjitombo, your choice is simple:

  • If the refund was a credit against an existing amount owed under a sales invoice, enter a credit note. See https://www.manager.io/guides/7425. Then, because the business already paid the amount from its bank account, enter a payment, posted to Accounts receivable. This is described in the same Guide, at the very end.
  • If there was no sales invoice, skip the credit note and just enter the payment. But rather than posting the payment to Accounts receivable, post it to the income account where the sale was recorded.

Since it sounds like you are reconstructing accounting records where no good ones existed, the issue of whether this affects this year’s or last year’s records does not really matter. Enter things on the dates they occurred.

I’m confused do I create a customer account or how

Just do what Tut said

So I record the refund in the sales account as well accounts receivable wont it show that we are expecting funds

you record it as a payment from the bank and post it to a sales account in the P & L

it will not affect the accounts receivable
Can I suggest you post it and then see what effect it has. If you want to post it differently, then you can delete the post and repost it

so which means i will only post it to P&L account in the sales account ?

Yes - it sounds as if the customer who got the refund does not have a customer account

yes thats correct

one more how will i treat leasing a photocopy machine from a supplier no invoices but payments have been done from the bank account

Just post the amounts to an expense account “Lease/rental equipment”

Presumably there is some contract documentation about the lease and payment schedule - the business is hardly making payments without a signed contract :slight_smile: