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  • 1.  Refunding a Customer Check

    Posted 07-18-2024 08:46 PM

    I have a scenario at work where a customer gave a check and now the customer has an overpayment on his account.  There are no open invoices on the customer's account.  He wants a refund for the overpayment.  In the accounting system we use, I would have to create a debit memo.  I would then need to create a zero dollar check payment and apply the previously created debit memo to the credit being reflected on the customer's account (overpayment) to zero out the customer's account.  The original transaction was a debit to cash and a credit to accounts receivable.  The debit memo created affected accounts receivable.  Now I have to refund the overpayment, which would be a credit to cash, but not sure which account to debit.  Does anyone know how to resolve this?



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    Luis Rancel CMA
    Controller
    Yonkers NY
    United States
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  • 2.  RE: Refunding a Customer Check

    Posted 07-19-2024 05:55 AM

     Handling an overpayment from the customer ,it's essential to follow proper accounting procedures. 

    1. Confirmation of overpayment - First verify that the customer has indeed overpaid. Check the invoice in question and compare it with your bank records.

    2. Account for the Overpayment - Record the overpayment as a liability in a separate account. This ensures accurate accounting records. The overpayment is neither revenue nor income, so it cannot be kept by the receiver.

    3. You can ommunicate with the customer and issue a refund for the excess amount.

    4. Create a credit note that you can allocate against a future invoice.If the customer has other outstanding invoices, apply the overpayment to a new or existing invoice.

    5. Journal entries creation- When issuing a refund, create the following journal entries:       

    6. Debit the liability account where you have recorded the overpayment.

    7. Credit the cash account to reflect the refund amount 

    For clear communication ask them either for a refund or a full credit.



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    Nipun Ahuja
    Analyst
    Faridabad
    India
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  • 3.  RE: Refunding a Customer Check

    Posted 07-19-2024 10:00 AM

    Luis,

    It appears that with your system the debit memo only takes care of the balance in the accounts receivable file.  To correct the balance sheet the check would debit the accounts receivable account to zero it out.

    Good Luck!



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    Allan Lyons
    Director/Manager
    Squire Patton Boggs (US) LLP
    Stow OH
    United States
    ------------------------------



  • 4.  RE: Refunding a Customer Check

    Posted 07-19-2024 03:31 PM

    Thanks Allan.  That is correct.  On the second transaction, when i write the check, i will debit the accounts receivable account.  Which account should I use for the debit memo to zero out the credit that shows on the customer account?  If I only do the 2nd transaction, involving the writing of the check, you are right it offsets the negative amount on the Accounts Receivable ledger, but not on the customer's account.



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    Luis Rancel CMA
    Controller
    Yonkers NY
    United States
    ------------------------------

    Original Message


  • 5.  RE: Refunding a Customer Check

    Posted 07-19-2024 03:38 PM

    Luis,

    Does the subledger entry post to the G/L or is the debit memo only to record the check you are writing to the subledger.  If there is a transaction posted to the G/L with the debit memo then the credit side should be to accounts payable or some clearing account that the check can then clear.



    ------------------------------
    Allan Lyons
    Director/Manager
    Squire Patton Boggs (US) LLP
    Stow OH
    United States
    ------------------------------

    Original Message


  • 6.  RE: Refunding a Customer Check

    Posted 07-19-2024 12:12 PM

    People tend to forget that credit memos, invoices, and bills are all just window dressings for journal entries. Due to programming issues in Quickbooks (Desktop & Online), I have discovered that some reports do not include journal entries in the totals. Because of this, I use $0.00 bills and invoices in place of journal entries for most entries. I do use JEs for a few adjustments.

    I say all this as a preface to the actual solution to your problem. The debit memo should have the bank account as the credit line item. Instead of putting an expense or income account in the debit memo details, use the bank account. The debit memo number will be the check number if you write a check. Problem solved. This will debit AR and credit cash without affecting any income or expense accounts.



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    David Belnap, CMA, CSCA, CPA
    Belnap Accounting
    Hollywood FL
    United States
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  • 7.  RE: Refunding a Customer Check

    Posted 07-19-2024 03:22 PM

    Hello David,

    Thank you for your reply.  The only issue is that this accounting system requires two transactions.  The first is to zero out the credit on the customer account.  It has to be done with a debit so that when the zero dollar payment is applied, the debit and the credit (overpayment, affecting a/r) offset each other.  As for the debit memo, If I credit the cash account it will decrease the cash balance.  If I debit the cash account, it will increase the cash balance.  Then, when i write the check, it will affect the cash account again.  In essence i need two debits, once for the debit memo and one for the writing of the check.



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    Luis Rancel CMA
    Controller
    Yonkers NY
    United States
    ------------------------------

    Original Message


  • 8.  RE: Refunding a Customer Check

    Posted 07-19-2024 03:30 PM

    Then the best option is a clearing account as was recommended by Nipun Ahuja

     

    Thank you,

    David Belnap, CMA, CPA, CSCA

    Cell: 208-380-1825

    Book a meeting with me BelnapAccounting@.../bookings/"> here.

    Certified Management Accountant (CMA)Qr code Description automatically generatedQuickBooks Online Advanced Certified

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    Original Message


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