Cadzow Knowledgebase

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Issuing Refunds / Cancelling Credits

Refunding Overpayments

If a customer has overpaid and requires a refund, this transaction can be entered as follows:

  • Use Enquiries under the Accounts Receivable tab to locate the original receipt and double-click to open it.

  • Click Options and change the Reversal date to the date the refund was issued (ie. the cheque/EFT date).

  • Click Reverse.

    The receipt will be reversed and the screen will change to show the receipt reversal.

  • Click Add New

  • Post a receipt for the value of the outstanding balance.

  • Close the receipt screen.

  • Go into Accounts Receivable, Banking, Current Banking.

  • Select the appropriate Bank Account and Bank Type.

  • Select the receipt reversal by clicking on the check box next to it in the Deposit Now column:

  • Select the second receipt.

    Note that the Total for Deposit is now a negative value, which represents the refund value.

  • Change the Deposit Date to the cheque/EFT date.

  • Commit the deposit with F11 or by clicking Commit. (Note there is nowhere to enter the cheque/EFT reference number.)

This process creates a negative receipt and a corresponding negative deposit which has the same effect as refunding the client. If using a General Ledger to perform bank reconciliations, the negative value will appear in the bank reconciliation and can be marked off when the payment appears on the bank statement.

For example, suppose a customer paid $567 in advance for an order. Part of the order for $345 was delivered, leaving a credit of $122. The remainder of the order is then cancelled, and the customer wants a refund of $122. The original receipt of $567 is reversed, which creates an entry of −$567. This leaves the account balance at $345. A new receipt is entered for $345. Thus the entries to be “deposited” are $345 and −$567 which adds up to −$122. A “receipt” of −$122 is equivalent to a payment of $122.

Cancelling Paid Sales (or Cash Sales)

If you have issued an invoice to a customer, the customer has paid and now requires a refund, these transactions can be entered as follows:

To Reverse the Original Sale

  • Use Enquiries under the Accounts Receivable tab to locate the invoice in question and double-click to open it.

  • From the Special menu, choose Create Credit Note.

    A credit note will be created ready for the details to be confirmed.

  • Enter an appropriate date and the credit note reason (under the Options tab). Credit notes generally are most appropriately dated as “today” so they appear on the current period's reporting, but there are circumstances when the credit note should be back-dated.

  • Commit the credit note with F11 or by clicking Commit.

To Issue A Refund

  • Use Enquiries under the Accounts Receivable tab to locate the original receipt and double-click to open it.

  • Click Options and change the Reversal date to the date the refund was issued (ie. the cheque/EFT date). (Note there is nowhere to enter the cheque/EFT reference number.)

  • Click Reverse.

    The receipt will be reversed and the screen will change to show the receipt reversal.

  • Close the receipt screen.

  • Go into Accounts Receivable, Banking, Current Banking.

  • Select the appropriate Bank Account and Bank Type.

  • Select the receipt reversal by clicking on the check box next to it in the Deposit Now column:

  • Change the Deposit Date to the cheque/EFT date.

  • Commit the deposit with F11 or by clicking Commit.

This process creates a negative receipt and a corresponding negative deposit which has the same effect as refunding the client. If using a General Ledger to perform bank reconciliations, the negative value will appear in the bank reconciliation and can be marked off when the payment appears on the bank statement.

Cancelling Credit Notes

If a customer has an existing credit arising from a credit note, and the credit note is to be written off:

  • Create an analysis code to represent credit write-offs. (Or use the “Bad Debts” analysis code; writing off a credit is essentially the opposite of a bad debt so it may be appropriate to put the value into that code.)

  • Create a stock code linked to the analysis code for credit write-offs. (Or use “Bad Debts”.)

  • Check the amount of the credit note that is not yet allocated. Check the mixture of GST-free and GST-applicable items. If the credit note is completely unallocated, copy the amounts of the GST-free and GST-applicable items. If the credit note is partially allocated, take a prorata value for each.

  • Create an invoice for the same value as the unallocated portion of the credit note, and use one line item for the GST-free component and one line item for the GST-applicable items.

  • Post a zero-value receipt to the customer's account and allocate both the credit note and invoice to it.

Income Effects: The invoice represents income to you.

GST Effects: If accounting for GST on the cash basis, this will have no effect as neither the invoice nor the original credit note were cash transactions. If accounting for GST on the accruals basis, the invoice creates a taxable supply and will be included on the BAS (in the same way that a bad debt write-off creates input tax credits). There may be circumstances where GST does not apply, eg. if writing off a credit from before 1 July 2000. Consult your accountant and/or ATO for advice about GST implications.
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