Difficulty Level: Intermediate Level AccountMate User
Version(s) Affected: AccountMate 7 for SQL and Express, AccountMate 6.5 for SQL and MSDE, and AccountMate 6.5 for LAN
Module(s) Affected: AR, AP, BR
Posting Date: 10/10/2007
DESCRIPTION
From time to time, customers return merchandise they purchased for one reason or another. In some cases, these returned items were paid using the customer’s credit card. This TechNote discusses how to record refunds for receivables collected in the form of credit card payments. This article will also outline the journal entries and the effects in the bank reconciliation process when recording refunds for credit card payments.
SOLUTION
For discussion purposes, consider the following scenarios:
1. Customer ACC1 returned merchandise amounting to $100 to National Office Supply, Inc. ACC1 paid for the merchandise through credit card. National Office Supply, Inc. decides to refund the credit card company by issuing a check.
2. Customer ADI3 returned merchandise amounting to $200 to National Office Supply, Inc. ADI3 paid for the merchandise through credit card. National Office Supply, Inc.’s bank account will be automatically charged for the returned merchandise.
Recording the Refund Transaction in the Accounts Receivable Module
Perform the following to record the refund transaction in the Accounts Receivable module for both scenarios:
1. Record a sales return transaction using the Create Sales Return function. When you record a sales return, AccountMate will generate an open credit; it will debit the sales return GL account from the revenue code and credit the accounts receivable GL account from the customer record.
Figure 1-1 AR Transfer to GL Report – Refund transaction
2. Record a refund using the Refund Open Credit function.
If you are using AM7, perform the following:
Scenario 1 (AP check) 2.1 Access the Refund Open Credit function. 2.2 Enter the customer # and other necessary information. 2.3 In the Refund Type area, select the Check (in AP) option.
Figure 1-2 Refund Open Credit – Check (in AP) option
2.4 Select the refund transaction from the grid and enter the refund amount. 2.5 Click Save. 2.6 Click the Post AP button to display the AP Invoice Transactions function.
Figure 1-3 Post AP button
2.7 Proceed to the Record an AP Invoice and Post Payment for the Refund Transaction in the Accounts Payable module section.
Figure 1-4 AR Transfer to GL Report – Check refund transaction
Scenario 2 (AR Cash/Credit Card)
2.1 Access the Refund Open Credit function.
2.2 Enter the customer # and other necessary information.
2.3 In the Refund Type area, select the Cash/Credit Card (in AR) option.
Figure 1-5 Refund Open Credit – Cash / Credit Card (in AR) option
2.4 Select the refund transaction from the grid and enter the refund amount.
2.5 Click Save.
2.6 In the Cash/Credit Card Refund window, enter the Pay Code (cash or credit card) and the bank #. If you selected a Card pay type, click the Lookup button to select from the Search window the appropriate credit card number.
Figure 1-6 Cash/Credit Card Refund window
2.7 Click Save.
When you record a cash or credit card refund, AccountMate creates a debit entry to the customer’s accounts receivable GL account and credit the cash GL account of the selected bank account record. This type of refund will create a negative receipt in your bank account.
Figure 1-7 AR Transfer to GL Report – Cash/Credit Card Refund transaction
If you are using MS6.5 or LN6.5, perform the following for both scenarios:
2.1 Access the Refund Open Credit function.
2.2 Enter the customer # and other necessary information.
2.3 Select the refund transaction from the grid and mark the checkbox.
Figure 1-8 Refund Open Credit window (Scenario 1)
Figure 1-9 Refund Open Credit window (Scenario 2)
2.4 Click Save.
2.5 Proceed to the Record an AP Invoice and Post Payment for the Refund Transaction in the Accounts Payable module section.
When you record a refund in MS6.5 or LN6.5, the customer’s accounts receivable GL account is debited while the open credit refunds GL account is credited.
Figure 1-10 AR Transfer to GL Report – Refund transaction
Record an AP Invoice and Post Payment for the Refund Transaction in the Accounts Payable module.
After a refund transaction is recorded in the Accounts Receivable module, the next step is to record payment of the refund.
If you are using AM7, perform the following:
Scenario 1 (AP check)
1. The AP Invoice Transactions function is automatically displayed by the system when you click the Post AP button.
2. Click the One-Time Vendor button to create a one time vendor for the credit card vendor. You may also create a new vendor record for the credit card vendor if you want to maintain the vendor in your file. In which case, drill down on the Vendor # field to display the Vendor Maintenance function. Refer to the Online Help or the Electronic Manual on how to create a new vendor record. In case you have an existing vendor record for the credit card vendor, click the Lookup button to select the credit card vendor from the Search window.
3. Enter the AP invoice number; AccountMate will populate the rest of the fields with the information from the refund transaction you recorded. Edit the information, if necessary.
4. Review the GL Account IDs in the GL Distribution tab. AccountMate automatically populates the GL Distribution Accounts fields to offset the entries when you recorded the refund transaction (see Figure 1-4).
Figure 2-1 AP Invoice Transactions – GL Distribution tab
5. Save your entries.
6. Record payment for the AP invoice.
7. Post a handwritten check or print a computer check to record the payment for the $100 invoice posted for the credit card vendor. Posting a handwritten check or printing a computer check will create a debit entry to the Accounts Payable GL account and a credit entry to the cash GL account. The cash GL account comes from the bank account record for which the check was posted or printed.
Figure 2-2 AP Transfer to GL Report – Post or print check for AP Invoice transaction
Scenario 2 (AR Cash/Credit Card)
National Office Supply, Inc. does not need to issue an actual check since the refund will automatically be charged against their bank account by the credit card company. The negative receipt appears in the Record Bank Deposit function when you record bank deposit for bank reconciliation purposes.
If you are using AM6.5 or LN6.5, perform the following:
Scenario 1 (AP check)
1. Access the AP Invoice Transaction function.
2. Click the One-Time Vendor Setup button to create a one-time vendor record for the credit card company. You may also choose to create a new vendor record or choose an existing vendor record, whichever is applicable. If you decide to create a new vendor record, it is important that you set up the proper accounts to offset the entries when the refund transaction was recorded in the Accounts Receivable module. In this case the GL Distribution account that should be set up for the vendor is the GL Account ID from the Open Credit Refunds field in the GL Accounts tab of the AR Module Setup function. This way, recording an AP invoice will debit the Open Credit Refunds account, thereby offsetting the entry for the refund transaction recorded in AR.
3. Post an AP invoice for the refund transaction. Verify that the GL Account IDs in the GL Distribution tab are correct.
4. Record payment for the AP invoice.
5. Post a handwritten check or print a computer check to record the payment for the $100 invoice posted for the credit card vendor. Posting a handwritten check or printing a computer check will create a debit entry to the Accounts Payable GL account and a credit entry to the cash GL account. The cash GL account comes from the bank account record for which the check was posted or printed (see Figure 2-2).
Scenario 2 (AR Cash/Credit Card)
1. Perform Step #1 to Step # 4 of the preceding discussion.
Note: National Office Supply, Inc. does need to issue an actual check as the refund will automatically be charged against their bank account by the credit card company; however, the company should still record an invoice to reflect the offsetting of collectibles against payables for bank reconciliation purposes.
2. Post a non-check transaction to “pay off” the invoice created for the credit card vendor for the refund transaction. Use the Post Handwritten Check function in AP and choose the Non-Check Transaction option when you save the payment. This will close off the balance of the refund invoice and generate a debit entry to the accounts payable GL account and a credit entry to the cash GL account of the bank account record used in the AP non-check payment transaction. This non-check payment will represent the credit card charge for the returned merchandise that will be reflected in your bank statement and will be available for you to mark cancelled when you perform bank reconciliation. In addition, it will not show up in your AP Check Register Report unless you set the report to Include Non-Check Payments.
Credit Card Vendor Payment and Customer Payment Received for the Returned Merchandise as Reconciling Items during Bank Reconciliation
Scenario 1
The check payments should be recorded as cancelled using the Reconcile Bank Account function in the Bank Reconciliation module once the check is presented to the bank for payment. You can record the check as cancelled using the Record Cancelled Check function in the Accounts Payable module if you do not have the Bank Reconciliation module.
Scenario 2
The non-check payment must also be recorded as cancelled using the Reconcile Bank Account function in the Bank Reconciliation module once the credit card charge appears in the bank statement. You can record the check as cancelled using the Record Cancelled Check function in the Accounts Payable module if you do not have the Bank Reconciliation module.
In AM7, the negative receipt for the refund transaction appears in the Record Bank Deposit function. You can record this deposit and verify the deposit in the Reconcile Bank Account function in the Bank Reconciliation module once the credit card charge appears in your bank statement.
Refer to the Online Help or the Electronic Manual for more information on performing bank reconciliation.
Knowing how to handle refunds for credit card payments enables you to properly record the transaction in AccountMate; thereby, ensuring that the proper GL Account ID, bank account, customer, and vendor balances are updated.
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