[Amir]

Thanks a lot. I really appreciate your prompt and comprehensive response.

@johnmoffat said:
A refund is simply another word for a repayment.

Suppose you sell goods on credit for $100.
We debit receivables with $100.

Suppose the customer accidentally pays us twice (so they pay us $200).

We debit cash and credit receivables with $200.

So…..we now have a credit balance on receivables of $100.

Obviously, we will not keep the extra – we need to repay the $100 to the customer.
We make a refund of $100.

So….credit cash and debit receivables with $100. Now there is zero balance on receivables and all is correct.

All a refund is, is a repayment of cash. Maybe it is because the customer paid too much (as above); maybe it is because the customer returned goods that they had already paid for. The reason is not relevant – if we make a refund then we repay cash.

(In the above example, we could say that we are refunding a credit balance, but all we are every actually doing is repaying cash.
If we buy goods and pay to much (so the supplier refunds/repays cash to us) then it is exactly the same in reverse.)

Hope that helps 🙂

[Author]

Posts