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How shall we understand the concept “refunds received from suppliers”? I don’t quite understand why it’s placed on the credit side of a payables ledger control a/c? because it seems to me that money received from the supplier should reduce the amount payable, which means it should be on the debit side.
Any help will be highly appreciated.But before the refund is received, you must’ve returned goods to the supplier. So the amount of the returned goods would be on the debit side of the control account and when the supplier actually pays the money back by way of refund, it is basically the other side of the transaction (credit) to net them both to zero.
Dear Fidget,
when we return goods to supplier (bought on credit) it should be Cr. Purchases & Dr. Payables.
but when there’s refund from Supplier. it’s Dr. Cash & Cr. Payables.But what’s the use of such operation?
Thank you.
I don’t get it…
It’s the question 202 from the exam book, there is a payables ledger control account with errors and we are supposed to fix it. On the debit side, one of the items is “Refunds received from suppliers” and it is supposed to be on the credit side.A credit purshase is:
Dr Purchases – Cr Payables,
and a purchase return is:
Dr Payables – Cr Purchase returns.
So a money actually coming in from the supplier would be Dr Cash – (again) Cr Payables? How in the world does that balance the palyables account?
What am I missing?
I really do suggest that you watch the free lectures on control accounts!!
Refunds are simply a repayment of cash.
Maybe the customer had paid us too much by mistake – so we repay/refund the overpayment.
Maybe the customer returned goods for which they had already paid – so we repay/refund the money.
(Same logic applies to refunds to us from suppliers)
Thank you for your reply… I think I figured it out… Basically we receive refund only if we already paid, or overpaid. But since I already paid, what does the payables account have to do with it anymore?
It means that it was something from the past, a past debit balance on the payable account. I overpaid and there was a debit balance on the account for that supplier and now he repays me and just clears out that debit. I think that’s it.
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