Refunding Customer
Customer Refund is a transaction that is used to reimburse a customer's money. Refunding Customer Payment is performed to show money given back to a customer to refund for services the customer is not happy with, for merchandise/service not received or for overpayments. Refunding Customer Payments process is used in situations when the original receipt was allocated to an invoice or multiple invoices.  Note: If the refund is to result in a check, use Refunding Customer Receipts to create both the AR Refund Invoice and the AP Refund invoice in a single step.

Note: If you do not need to print a paper check to the customer, you may wish to use the Refunding Customer Payment Shortcut instead.

The process of refunding a customer involves:

1. Recording Customer Credit to acknowledge a credit balance. Skip this step if you are refunding an overpayment as the customer already has a credit balance.
    - This Customer Credit credits AR and debits “Refund Allowance”  Note:  Instead of debiting a “Refund Allowance” account, you could add lines to debit the individual revenue accounts appearing on the original invoices.  You should use one method or the other.  It may get confusing if you use the refund allowance in some cases but not others.   Note: “Refund Allowance” is a contra revenue account.
     - The amount being refunded can be for the full amount of the overpayment or for a lesser amount.
    - From the customer's perspective, the customer credit is the refund invoice, and the customer invoice in step 2 is the payment of that refund.  Use appropriate Customer Memo descriptions for the customer credit and customer invoice as necessary.

2. Recording Refund Customer Invoice to offset the credit balance
    - The Customer Invoice debits AR and credits “Refunds Payable” Note: “Refunds Payable” is a liability account.  You may want a dedicated “Refund” product associated with this account.  The product should be marked as sold to customers and have an amount of $0.00.

3. Allocating Customer Credit from step 1 to pay Refund Customer Invoice from step 2.

At this point, the net change to AR and Revenue is 0.  The customer statement shows these items as being refunded.  The “Refunds Payable” liability account has a balance for any refunds that require repayment.

4. Recording Refund Vendor Invoice to recognize the money owed to the customer
    - The Vendor Invoice credits AP and Debit “Refunds Payable”

5. Recording Refund Vendor Payment to reflect the payment made to the customer
    - The Vendor Payment debits AP and Credit Cash

6. Allocating Vendor Payment from step 5 to pay Refund Vendor Invoice from step 4.  Note: Paying through the invoice list automatically creates this allocation.

Cash AR Revenue Refunds Payable AP
Initial Customer Invoice +AR +Revenue
Initial Customer Receipt +Cash -AR
Refund - Customer Credit -AR -Revenue (Refund Allowance)
Refund - Customer Invoice +AR +Refunds Payable
Refund - AP Invoice -Refunds Payable +AP
Refund - AP Payment -Cash -AP
Total 0 0 0 0 0

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