When you return something to a vendor, the vendor may give you a refund check or other credit. Here’s how to record it.

Overview

When you return merchandise to a vendor or receive a ‘store credit’, you could make a Journal Entry to account for it. However, if you wish to have a vendor-specific record, you may want to enter the transaction as a check (for an amount of zero) that reverses the original purchase.

Before You Begin

  • Cash: For a cash or check refund, or refund to your debit card, there is nothing to set up ahead of time.
  • Store Credit: For a credit memo, or store credit, first create a new Current Asset Account (in your Chart of Accounts) called something like “Vendor Receivables”.
  • Credit Card: If the amount is being refunded to your credit card, be sure you are using the Contra Asset method of tracking expenses for the card. See: Credit Cards: Payments & Purchases

Vendor sends you a check (or refunds your debit card)

You’ve been issued a check for returned school supplies (or a credit was issued to your debit card). Look Up the Vendor and record a check (for an amount of zero):

  1. Make the check number something you reserve for these types of transactions, like 44,4444.
  2. Nothing will come out of the Checkbook, since the transaction amount is zero (see both items marked #2 in image below).
  3. Enter a negative amount to reverse the expense.
  4. Enter a positive amount for the checking account to which the funds are being deposited. The increase to the checking account will be available in your Bank Statement Reconciliation process under Other Credits.
    Zero-check-checking-(3)

Vendor refunds your credit card

Use the credit card contra asset as both the Checkbook and the offset to the expense. This decreases your expense account and increases the contra asset, reducing the balance owed on the credit card.
zero-check-credit-card-(1)

Vendor issues a store credit or credit memo

  1. The entry is similar to a real check received (above) with just one change, the increasing account is the vendor receivables asset you added for this purpose.
    zero-check-vendor-credit
  2. To use up  the credit (at some point in the future) enter check for an amount of zero, that pays the expense and reduces your vendor receivables.
    zero-check-use-up-vendor-credit-(1)