Differences in refunds between “Point of Sale” and “On Account” Transactions
When a charge account customer returns merchandise, the credit is applied on account, which remains there until applied against open invoices or amounts due. Transactions on account are processed through the A/R G/L account, as specified in the G/L Control Table.
Issuing a return or refund for a point of sale transaction is different than for an on account transaction because there is no dedicated customer account to pass the transaction through. Inform uses the Customer Deposits G/L account, as specified in the G/L Control Table, to serve as the offset for Point of Sale activity.
- See also: Create a return order
Preliminary setup
Returns and refunds may run through the same current liability G/L account because they both represent monies due to or from customers that are not ordinary receivables or payables.
- A dedicated General Ledger Account is required to hold in suspense the amounts due to and from customers. When the monies are released, the account clears out, thereby providing an audit trail for the management of returns and refunds.
- A dedicated Miscellaneous Charge Code is required to record the returned check or refund as part of the sales order. Whenever the charge code is used on a sales order, the system will directly affect the Customer Returns & Refunds G/L to prevent the transaction from getting intermingled with other items.
- Optionally, a miscellaneous charge code may also be created if a returned check fee will be charged to the customer. Link this code to a “Bank Account Fees” expense G/L account.
- Note that a miscellaneous charge code does not have a cost associated with it and does not appear on an inventory value report. A positive charge code will produce a credit to the associated G/L account. A negative charge code will produce a debit to the associated G/L account.
Go to Accounting > General Ledger > G/L Account to create a “Customer Returns & Refunds” account. The account should fall directly below your Point of Sale Deposit account on your Chart of Accounts and is classified as a current liability. For example, if POS Deposits is #2200-00-00, assign this account as #2210-00-00.
Go to File > Company > Miscellaneous Charge to create a “Customer Returns & Refunds” code. Link it to the G/L account established above. See Set up miscellaneous charges.
Record returned checks
Returned checks are considered “suspense” transactions in which the amount owed by the customer remains in a suspense G/L account from the time the returned item is posted to the time the recovered funds are posted.
Running an NSF check through the Point of Sale system involves the use of a Miscellaneous Charge Code to record the returned check on a sales document and a second code to record an optional fee. Neither charge code makes a direct entry to cash, but rather the total amount of the invoice requires an amount tendered that does directly impact cash in the bank.
Follow this process if you expect to recover the funds:
- Enter a Cash Sales Order to the appropriate customer account using a negative amount under the Returned Checks miscellaneous charge code. The amount tendered must also be negative so that when the order is posted as part of your POS batch, there will be a reduction of cash to tie to the bank's reduction.
- When the money is recovered, enter a Sales Order using the Returned Checks code for the check amount and the fee code for the fee amount. Enter both codes as positive dollar amounts to match the amount tendered. This item can be posted with the rest of the batch as long as the repayment is included in the daily bank deposit.
DDI recommends posting this item by itself, not as part of the batch, so it is isolated on the bank reconciliation.
*Source “SJ” G/L effect: Debit Returns & Refunds / Credit POS Deposits
*Source “CR” G/L effect: Debit POS Deposits / Credit Cash In Bank
*Source “SJ” G/L effect: Debit POS Deposits / Credit Returns & Refunds / Credit Bank Fees
*Source “CR” G/L effect: Debit Cash In Bank / Credit POS Deposits
Record refunds
Refunds are another type of “suspense” transaction in which the amount due back to the customer remains in a suspense account from the time the sales order is invoiced to the time the refund check is produced.
Scenario 1: A “cash” customer returns merchandise originally paid on a credit card.
- If credit card processing is integrated, create the Return Sales Order and indicate Credit Card as payment type.
- The refund will be credited to the customer’s card and the Daily Cash Receipts Journal will show negative type “CC.”
- If credit card processing is not integrated, create the Return Sales Order, indicating Credit Card as payment type, and manually process the transaction through the merchant terminal.
- The refund will be credited to the customer’s card and the Daily Cash Receipts Journal will show negative type “CC.”
Scenario 2: A “cash” customer returns merchandise originally paid by cash or check and there is sufficient register cash to provide an instant refund.
- Create the negative Sales Order using Cash as payment type.
- The Daily Cash Receipts Journal will reflect the reduction in cash and enable reconciliation to the bank deposit.
Scenario 3: A “cash” customer returns merchandise originally paid by cash or check and there is insufficient register cash to provide an instant refund. In this case, a check will be mailed to the customer.
- Create the return Sales Order using the Returns & Refunds miscellaneous charge code.
- The positive amount entered to the charge code must exactly offset the merchandise return and therefore generate net increase to cash of $0. The Returns & Refunds G/L balance will remain a credit until the refund check debit clears it out.
- The Daily Cash Receipts Journal will not reflect any change in cash as a result of this transaction.
- Create a Non-Vendor Check to disburse funds and clear out the amount in suspense.
- Use the same Returns & Refunds G/L account as was linked to the miscellaneous charge code. The resulting debit will cancel out the credit created when the Sales Order was updated.
- If the timing of this transaction causes the check to be issued in the period following the return, the Returns & Refunds account will carry a credit balance at the end of the first period, and will be cleared out during the second period.
*Source “SJ” G/L effect: Debit Sales / Credit Returns & Refunds
*Source “CR” G/L effect: None
*Source “AP” G/L effect: Debit Returns & Refunds / Credit Accounts Payable
*Source “CD” G/L effect: Debit Accounts Payable / Credit Cash In Bank