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I do not understand why when you record a refund you credit cash this is logic a decrease in cash and debit receivables.
Since receivables is an asset account that increases on debit and represents amounts owed to the firm by customers, to debit the account with the amount of the refund does not seem very logical you do not have an extra claim an increase in receivables. Why do you record it like this?
Thank you.I think this is for when the customer overpays. Not when they return goods. And when the mistake/overpayment occurs after the “Dr Rec Cr Sales” entries have been made. So when the following entry is made:
Dr Cash 100
Cr Receivables 100Lets say the customer has overpaid by 90, they should have paid 10.
So we refund them 90 and make the entry:
Dr Receivables 90
Cr Cash 90As for it not making sense because the receivables asset is increasing, (my mind gets stuck like this too on dr/cr logics ^^) remember that when we receive cash for credit sales then receivables decreases (and cash asset increases), but if the cash we received was a mistake, then when we correct this, receivables will increase back to its former state because we have received less cash so are still owed what we were owed before.
Hope this is right!
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