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Community > Accounting >

How to process a refund?

Started by Benjamin Paul -   in Accounting

Just looked through the guide for "Cash Refunds", and it's not helping me.

Why can't I drill into a paid invoice and just hit a button "refund" and then enter details as to when the refund was made.

If I just delete the transaction it will have incorrect historic balances - and I don't think I should need to pay the person via a bill to get correct dates.

Am I missing something? Is there an easier way to refund someone's purchase that will reverse the funds on the date of the refund...
Merged: Reconciling returned funds

Hi there, I'm just seeking clarification from Xero experts on the best way to reconcile returned funds from the bank for an expense that bounces back due to incorrect account details being used. I have read through the forums & help sections & understand I could set up a credit note & then do a cash refund in the credit note screen & then reconcile this in the bank reconciliation screen....but this seems like a lot of of work.

Can you just (1) create a money spent transaction for the original transfer in the reconciliation screen against the relevant expense account, then (2) when the funds are retuned allocate it as a money received against the same expense account, & finally, (3) do another money spent against the expense account when the correct bank details are used? I have noticed that when I do the 2nd step, the transaction is showing as GST exempt as it is a money received transaction against an expense account. I just want to make sure I am accounting for GST properly.

Thanks in advance for your assistance!
 

Anthony Jacob  

Hi there Anthony,

Your approach certainly would work - and I'd suggest just a couple of slight changes to it.

For the initial outgoing (which is then returned into the bank account), instead of coding this to an expense account, I'd just simply code this to a Current Asset or Current Liability account - just a little "holding" account, or something like that.

For both steps 1 and 2, I'd code the transaction to this account, and use the GST exempt tax code - as it can get a little messy if you're claiming GST on the first payment, then remitting GST on the refund, etc. And if the amount is not a "neat" amount, then you may find that the GST is rounded a little, and you might find that you have a cent or two difference - which, if you're anything like me, would drive me crazy.

Then, finally, with step 3, correctly code the transaction as per normal, with the normal (or correct) tax code.

Hope this helps
 

Jeremy Wotton  

Hi Benjamin. I'm not sure I follow you exactly. You want to refund a Sales Invoice that the client has already paid? In accounting terms (which is what Xero is managing here) you actually need 2 transactions to reflect that properly. One is a credit note (to reflect the reversal of the sale) and then the cash refund to the client. In Xero there is no way to achieve this from a paid Sales Invoice - you need to go back to the Sales home page and click on Add Credit Note. Once you have created the credit note and allocated it to the correct contact you can enter the refund details at the bottom which will create the payment in the bank/payments account. Alternatively, you could simply enter a note onto the invoice and use a Spend Money coding it to Sales.
 

Peter McCarroll  

So once you have a created a sales invoice and a credit note, how do you link the sales payment with the refund payment in the reconcile screen?
 

Hamish Parker  

Hamish. There is no way (and nor should there be) to link the original payment to the refund payment in the reconcile screen. The sales payment is applied against the original sales invoice, paying it in full. The credit note and the refund transaction are not connected (technically) to the original invoice/payment, but they will show up on the customer statement. The outbound payment in the bank feed needs to get allocated against the "Cash Refund" transactions (created from the Credit Note), not against the original invoice or payment.

No, there are many scenarios here, so if your question relates to something other than sale, payment in full, refund in full, then let me know.
 

Peter McCarroll  

Hi Peter,
Sorry to bother you but a couple of questions please?

If the credit note and the Invoice are not linked how do you show if the same goods are returned or not? Restocking Fees and such?

If you issue a partial amount as the credit amount of the original invoice amount, how do you show that the clients account balance is Zero?

If they have only partially paid for the original invoice and you start issuing credit notes I'm lost as to how the clients account balance is tracked on the original invoice?
Wouldn't you be left with a situation where the invoice has an outstanding balance to be paid?

Cheers
s.
 

Stan Barnes  

Stan. I don't really follow your questions. Credit notes are a financial transaction - a negative invoice. They can be created to offset a specific invoice, or to simply be applied against a customer account and then applied to an invoice in the future. The question of returning goods etc is not necessarily related, but usually is. remember that Xero is not an inventory management system, so stick control is not a major consideration here.

If the CN is not linked to the INV (presumably because the invoice has already been paid) then you would create it manually and use the inventory items to record the credit, just like you did when you created the invoice. Restocking fees would be a negative adjustment on the CN.

If you issue a partial credit, then there is supposed to be something left to pay. Why would you issue a partial credit, but expect that the amount due is now zero? Again, if the client has partally paid for the original invoice, and you issue a CN it is up to you how much you credit. If you credit the remaining balance (and apply it against the unpaid invoice) then you can eliminate the debt easily.

Either I am misunderstanding your questions, or you have misunderstood what Credit Notes are and how they work. You should read the section in the help system, and if that doesn't explain it you should talk to your accountant or Xero Certified Advisor. I offer Xero training and problem solving as a paid service. If you would like further support please let me know.

Peter.
I'm an NZ Chartered Accountant, Xero Certified Advisor and Xero's 2012 Most Valuable Professional. Please contact me for qualified accounting and business support: www.business-express.co.nz or phone +64-4-282-0306 or +1-647-367-0876.
 

Peter McCarroll  

I've created an inventory item called 'Refund' which goes against the sales account with the VAT set to 20% VAT on income.

Once I've issued the refund (which is normally a partial one) I can then match & create it against this, this then reflects truly on income and VAT to pay?

Is it okay to do it this way? I found the whole credit note thing a right pain....
 

Daniel Barrett  

Hi Daniel,

This should get the same accounting result. The only thing it will lack is that it won't be displayed as activity on a customer statement. You will have to use a Credit Note and Cash Refund to ensure that they show up on the statement activity.

Peter.
 

Peter McCarroll  

Thanks Peter, that's okay as long as it gives us the correct accounting result! :-)
 

Daniel Barrett  

Keep up the good work team!
 

Brittany H (Community Manager)  

Can it work if i leave the original payment as it is part of a batch and just receive it in to our cash holding account and sent it out again spend money and just make it tax exempt? Would that not be easier?
 

Accounts Queensland Drilling  

I have had a problem with reconciling a partial refund against a tracked Inventory item (the seller refunded me some of my original payment because the item turned up not as described). If I create a new credit note against the tracked Inventory item, the partial payment changes the stock amount for that item from 1 to 0 - yet I'm only doing a PART refund not a FULL refund, so I still have the item in stock and don't want it to change to 0.
Any way round this that anyone can think of? Thank you
 

Lindy McNair  

Lindy,

Don't use the inventory code with the CN - just code it to COS or something. Then, in the inventory item do an adjustment - revaluation. You will have to work out the new total inventory value (old value less the credit - all excl sales tax) and enter it. Code it to the same account that you coded the CN to.

Now you should be all good. Yes, a little more complicated than it needs to be.

Peter.
Xero Certified Advisor, Canadian CPA & New Zealand CA and Xero's award winning Most Valuable Professional. I give implementation advice to clients all over the globe. Get a Xero MVP on your team! Visit my blog for various Xero articles.

You can book a live remote Xero support session with me or self-paced Xero training for a very reasonable price.
 

Peter McCarroll  

Peter. Thanks for your reply. Yes, that's what I ended up doing, coded the refund to the COGS account that tracks the Inventory items, then did an adjustment to the item. Just thought it might have been a bit easier than that!
 

Lindy McNair  

Hi peter!

How much money can you support me how to do xero?
 

Minh Nguyen  

Hi Minh. I'm glad that you have found my support useful. I do live remote support for clients all over the world. Just go to my website to find the options. We have pre-paid booked support sessions or ongoing support packs that include periodic ledger reviews and year-end adjustments.
 

Peter McCarroll  

can you give your wibsite of you. now I want accounting of investments and loans. how to do it in software. I have to learn but do not have the support of no.Can you help me
 

Minh Nguyen  

can you help me as soon as , I want to do about capital and loan. help me details do it
 

Minh Nguyen  

Minh - a link to my website was in my last post. www.businessexpress.co/xero-support
 

Peter McCarroll  

I'm totally baffled why refunding money in Xero is so difficult. Here's a typical scenario: Someone pays an invoice (by check or credit card, whatever). Let's say someone calls and says we shouldn't have paid that invoice until we were satisfied with the service so I'd like the payment refunded until that time when we will pay. Why can't this be done simply?
 

Harvey Edelman  

I would like to be able to go to an invoice and create a credit note when that item has been returned. I understand the accounting process but having a refund option that creates a credit note with the same inventory item etc would save lots of time.
 

Jane Phillips  

Hi Guys

Does anyone who how to make refunds to customers into a batch payment file so it can be uploaded to the bank for payments similar to creditor invoice payment where you can batch invoice payments together and upload for payment via internet banking.
 

Fareed Khan  

Fareed,

You need to create a Bill to include it in a batch payment file.

If you already have a CN then you need to pay the CN through a suspense account. Then create the Bill posted to the same suspense account.

If you don't have a CN, then just code the Bill the same way as you would have coded the CN (against the same account as the original invoice). It just won't show on the customer statement.

Peter.
Xero-award winning Most Valuable Professional accountant serving NZ, Canada and US. Book a paid live remote Xero support session with me (no matter where you are) or use our self-paced Xero training.
 

Peter McCarroll  

Merged: Invoices have been paid twice

I have been paid for several invoices which i have reconciled.
The company has just paid the same invoices again.
I have called them and they asked me to make a refund to them for the invoices which had already been paid.
the problem i have is my reconcile screen i have the amount they paid me and the amount i paid to them.
how do i reconcile both these amount

I know this is probably very obvious but i cannot for the life of me work it out.

Thanks

Paul
 

Paul brown  

Hi, I have received full payment of an invoice which I have reconciled - I now have to refund this payment
I have done as stated earlier in this thread - I have created a credit note for the company for the amount - have also paid the money out of my bank account
Problem I now have is I can't reconcile the payment out to the CN?
If I do "find & match" with the company name in the reconcile page - the CN does not come up for me to match?
If I just fill in the details at the bottom of the CN then the payment out from the bank account is not reconciled
What am I doing wrong?
 

Christine Oddy  

I credit note means you owe them credit, but you have already paid them.

Here's how I do refunds to customers.
1. Delete the credit note.
2. Go to the Bank Account your refunded the from.
3. Add new transaction.
4. Put in Customers name, Date you paid out, Description: 'refund due to returned product', Account: 'Sales', Amount: $-50.00(or whatever you refunded them).
5. Now you can reconcile the money you refunded the customer.

By doing it this way the money you refunded is recorded into the same category (eg sales) as it originally come in on the paid invoice and can cancel each other out. Remember the minus sign in front of the amount as it money going out.
 

Russel D  

if we made a purchase on a event ticket, but partial amount was refunded, how will i show that refund.
do i link it to the original ticket purchase and how
 

Amrita Grover  

Russel, what if you are using inventory? How do you account for the item? Do you make an inventory adjustment? Can't believe it is so complicated for a basic refund.
 

David Gaven  

You are not able to have a negative amount for a item that is tracked in inventory.
 

David Gaven  

If I have a refund for an inventory item, I produce a credit note and select the item. This does not link with the original invoice but it does ensure the inventory tracking is correct.
 

Jane Phillips  

Hi David,

I am there with you on how complicated it is to process a refund until get a grasp on it. I spent months in between working and doing book keeping trying to work it out.

I have fairly big ebay store but I use spreadsheets for inventory not the xero one so I have no hands on experience with it.

I would be guessing it could be something like this.
1. Process your refund as per my notes. That would take care of your financial book keeping side of things.
2. You have not purchased the item. So I am guess you would adjust the inventory (if it allows you too) and increase stock level by the amount use receive back, and because it didn't cost you anything the cost of the item is $0.00.
3. The logic somewhere would be that you accounted for the refund value in step 1, so you don't want to go putting more money values anywhere else as it will probably double up your book keeping. It is more of a case of taking care of inventory quantities.

ps Xero people reading this your system is supposed to be designed to be easy to use, this means small business people can use it to run their business. David's question is just another example that you are still thinking like accountants and not like small business people. The Xero revolution is that you are breaking down the walls of traditional book keeping software which is complex.

These forums are littered with people scratching their heads with refunds. Rethink your current system please.

I'll start you off. Create a button called 'REFUND' if we click on it, it takes us to a page which we can process a refund. We check which type of refund it is which changes the form fields we fill out the fields and press click on the submit button. JOB DONE
 

Russel D  

Thanks Russel for taking the time to respond. I sell via a website and also ebay. I have the odd customer that has purchased items that I already hold in stock (I have already purchased these). I have a completed invoice along with the payment that is reconciled. I understand from an accounting perspective that this needs to be left alone and I certainly agree. The issue comes when a refund via Square/PayPal/Stripe is issued and I have an amount that is coming through the bank feed into Xero that I need to account for. As somebody pointed out earlier I can certainly create a credit note however the reconciliation process does not see it. I need to make an adjustment in the inventory as I did originally reduce the quantity by the order amount via the sales invoice, and now the item is not being delivered. So inventory is an issue and also the amount in the bank feed. I'm confident in my ability to do my bookkeeping, however struggle with the accounting side in Xero for refunds. Refunds handled via my website using WordPress is very easy...yes they have a refund button. I have spent a significant amount of time "googling" this for a solution and looking for help via a tutorial in Xero with no luck. Rant over! :)
 

David Gaven  

when you create the credit note pay it off and then it will appear in the reconciliation screen
 

Jane Phillips  

Thanks Jane. How do I pay off the credit note? Can you please expand?
 

David Gaven  

when you approve the credit note the screen will change and boxes appear at the bottom "make a cash refund" where you can complete the date paid, the account the money has gone from and a reference if you have one. It is a bit annoying that without it the Credit note is not suggested as a match in the bank rec screen. But hopefully it will get you to the end result that you require.
 

Jane Phillips  

I have been at this point before, but as it said cash payment I didn't go down this path. I will try this and see what the end result is. Thanks Jane appreciate the reply.
 

David Gaven  

Perfect! All items are correct, Inventory, Bank Account, Sales, and customer details. Thanks again.
 

David Gaven  

when it says cash it just means not credit, but should allow you to select different bank accounts or petty cash. If the customer has a credit account it offers you the option to allocate the credit to their account.
No Problem and I hope this helps.
 

Jane Phillips  

Hi Jane. Sorry for the tardy reply. Yes it has helped, thanks again for taking the time to reply. Dave.
 

David Gaven  

I now feel even more confused after reading the posts! I have an issue as follows:

I paid an invoice for goods total £918.72 one item could not be delivered in the time required so I cancelled this part of the order and the company refunded the amount of £907.20 leaving a paid balance of £11.52. How do I reconcile this payment?
 

Glenn Floyd  

Yes, I have to add my voice to the many requests for this Xero support. I've just had my first cancellation, I don't really want to lose more time scratching my head over how I process the reversal and refund - please consider setting up a 'refund' button which relates to the invoice, then takes you through to the credit note process for those of us with a basic bookkeeping knowledge, it would save a whole lot of time!
 

Thalia Kemp  

I am new to Xero and have a customer that have overpaid - I have sent the cheque to the customer for the refund which has now fed through to Xero Bank. How do I process the refund in XERO and in the bank and on the customer account? Hope you can help.
 

Petra Potgieter  

Hi Petra,

If you generated and invoice for the customer, just leave it as it you don't need to alter it.

All you need to do is

1. Click into into the bank account in xero which the money was drawn from for the cheque.
2. Click on '+ new transaction' button.
3. Put the customers name in the transaction To field
4. Write a description that is meaningful for you eg repaid for overpayment on invoice###.
5. Put the minus amount that you sent a cheque for eg -150
6. Choose the same Account that you choose when you charge the customer eg Sales or whatever you use.

Thats it!! You have balanced that sales account and if you ever need to look at that customers records you will see the refund under their transaction history.
 

Russel D  

Is there anyway we could process the refund via batch payment (like we pay suppliers?)

Thanks,
Tracy
 

Tracy Liang  

This is soooo confusing!
I agree with Russel, Xero need to create a REFUND button (with options after that) and make it simple!
I tried to create a negative sales invoice but Xero said it cannot be a negative amount.

So if I create a credit note: Is it a negative amount?
and how do I classify it?
Is it a sale? is there GST on income?

So after I create this credit note, I then need to do second step to actually refund that amount?
How do I do that again?
 

Benjamin Deutscher  

@Benjamin

You shouldn't need to create a 2nd invoice.

Either create a new transaction on the bank account where you took the money from to pay the customer back and use the same category as you do on your invoices eg sales and enter the negative amount.

Or wait to your bank feed sync's and you see the transaction, then just fill out customers name, category(same as you use on the invoices) and description eg "refunded customer due to broken" hit "ok" button and your done.

Forget credit notes unless you are giving the customer store credit (eg I owe you) otherwise if your just doing a straight money back refund, then do as above.
 

Russel D  

Ok, I worked it out
1. create the credit note and approve it (It is not a negative number and you include the same GST amount and account as the sale)
2. apply the payment
 

Benjamin Deutscher  

That's correct you need voiding the transaction is applying the same negative amount too the same category if you charged GST you need to make sure you are putting GST on the negative transaction too so they cancel each other out.
 

Russel D  

Hi, I bought a membership card from easyjet, the airline company. The card didn't work though so they cancelled it and refunded the money back into my account. All I want to do reconcile the transaction appropriately but it seems really difficult to know how to do this on Xero - none of the videos or tutorials seem to relate to an issue as simple as recording a refund FROM a supplier. There was no invoice - just paid for the membership card online - so not appropriate to create a credit note. Anyone have any advice?
 

Trish Sweeney  

Re above post - just thinking - I recorded the purchase under 'Travel' account so maybe record the refund under 'Travel' as well, and that's that - they'll just of cancel each other out. Anyone any ideas about this or previous post?
 

Trish Sweeney  

Trish you are bang on the money! You need to process it exactly the same as you did on the first transaction to cancel each other out. eg same account, same category, same choice in the includes gst even upload the receipt for the return if you got one.
 

Russel D  

Thanks Russel, that's great to have confirmation - appreciated.
 

Trish Sweeney  

I am a new user to this financial software but this was my situation and how I approached it.

I too had this issue today where the following situation happened: -
1. My company invoiced a supplier ABC
2. Supplier ABC disputed amount of invoice
3. My company raised a Credit Note & issued to Supplier ABC
4. Supplier ABC paid my company the invoice amount less the credit note amount
5. I was completing bank reconciliation for my company
6. I couldn't see the credit notes in the 'find & match' screen
7. I went to the Credit Note itself to review it
8. I clicked on the top right hand side of the Credit Note page 'Credit Note Options' drop down menu & selected 'Allocate Credit'
9. A new screen opened 'Allocate balance on Credit Note'
10. On this screen I was able to allocate the credit note amount to the invoice it was applicable to
11. I went back to the bank reconcilation and the invoice totals were reduced by the amount of the credit note and I was subsequently able to reconcile the payment from Supplier ABC to the actual correct invoice amount

I would attach screen shots but I can't tell how I can do that. However if you want them I can email you if you like.


 

Aaron Delamere  

I got Best Answer, you will start loving me.

Scenario: - $500 Sale invoice paid by customer and than need to refund $200. Customer will pay $200.00 later with different card.

Record $300.00 Receipt for invoice
Record $200.00 Receipt towards Suspense Account (BAS excluded)
Record $200.00 Spend towards Suspense account (BAS excluded)

In Reconcile window when you select all three transactions, It will reconcile and still show $200.00 as outstanding invoice.

Hope this helps

Thanks
Sam

 

Subhash (Sam) Patel  

Stacy Kessler,
when you are in the reconciliation screen there is a tick box that says show spent items, tick this and then you should be able to see the credit note. As long as you have recorded it as paid.
 

Jane Phillips