Correct way to handle credits and refunds

[James Kerr]

On Thursday 11 December 2008 timzak wrote:

> Mike or Penny Novack wrote:
> > timzak wrote:
> >>On the occasional time I've had to return a purchase, the amount
> >> credited seems to appear in my Income section.  Is this correct?
> >
> > No --- a credit for return is a negative expense item (completely of
> > partially canceling out an expense). To record it as an income item
> > overstates both income and expense.
>
> I guess what I'm asking is, if I credit an expense item, is it correct
> for it to show in the Income/Expense Report as income?
>
> Here's a real example, now that I'm in front of GnuCash:
>
> my wife was attending a chiropracter for some time.  Her co-pay was $10. 
> On one occasion, the chiropracter accidentally charged her $40 instead of
> $10. So they credited the card $30.  So for that month, we paid $110 for
> doctor's co-pays, with a single $30 credit.  The net amount was $80 paid
> to medical co-pay, but GnuCash, in it's Income/Expense Report, shows
> medical co-pay as a $110 expense under Money Out, and a $30 credit under
> Money In.  GnuCash's report shows, under Money In, a series of
> Income:source line items, along with a single line item
> Expense:Medical:Co-pay.  It is odd seeing the report showing an "expense"
> under an Income category.  This is the root of my original question.
>
> So I guess my question is, is it correct for the report to be showing
> that credit as an "expense" under Income?

I think that you are looking at the Cash Flow report, in which case this is 
the correct way to show it. The Cash Flow report shows changes in the cash 
position (increases and decreases), by source. This credit is an increase 
and is displayed along with other increases, which are usually, but not 
always, entered in Income accounts.

If you look at the Income Statement report, you'll see that this credit is 
reflected as a reduction in the expense.

Jim