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Hallo,
I am wondering why do we debit cash refund to customers to A/R. This would mean we are waiting to receive more money from the customers, but actually we’re returning money to the customer? Why are we actually debiting accounts receivable? Or is it because when the customers pay us, we credit A/R, and to reduce exactly this, we debit the A/R in the same account, although I would think this has to be done in another account, or maybe not because in this way our receivables decrease if we total the a/c?
Thank you!
A refund is a repayment of cash. This could be for several reasons – the most likely one being that the customer paid us too much.
Suppose we were owed $1000. There would be a debit balance on receivables of $100.
Suppose the customer paid us twice by mistake. We would debit cash and credit receivables with $2000. So we would now have a credit balance of $1000 on receivables.
So….we repay/refund the $1000 overpayment. Cr cash, debit receivables.
Now there is no balance on receivables and everything is perfect 🙂
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