Issuing a refund: how to record it and have it show up in the Customer Report

[DaveC49]

Robert,

Would the Credit Note facility not suit to record what essentially becomes a
reversal of part of an Invoice which would be included in the Customer
report? The discussion of the implementation is not all that clear in the
manual
(https://www.gnucash.org/docs/v2.6/C/gnucash-help/busnss-ar-invoices1.html#busnss-ar-invoicenew2)
but there is a little more in the Wiki mainly about it's future
implementation in 2012? I gather it was been implemented in 2.6. The
Tutorial and Concepts guide mentions it in the section on Invoices but does
not discuss what it does in any detail
.
What a Credit Note should do in principle is to credit the Accounts
Receivable by the amount of the repayment and debit any Sales Revenue
(Income) and any associated Tax accounts to reverse the corresponding parts
of the original transaction. The implementation of the business features is
normally pretty rigorous in GnuCash so I think this is what will occur.

Frequently in accounting practice  th reversal of the Revenue componentis
done by debiting a contra account to the Sales Revenue often called Sales
Returns and Allowances. I.e. you have a Summary placeholder account Nett
Revenue  which has Sales Revenue and  Sales Returns and Allowances as child
accounts summing into it. Accountants generally prefer this way of doing it
as it makes clear how much of the total revenue has had to be refunded which
most managers would want to control. You could also simply debit the Sales
Revenue account directly with a note in the Description/memo fields if this
is not something you need to manage

I have not yet checked out whether the Credit Note does actually reverse
both part of the original Sales revenue account and any Tax accounts
affected, but as it uses the Invoice structure to implement it, it should do
so using any tax tables you have in place for your Invoices. 

When you make the actual repayment to the customer, the transaction will be 
a credit to your Check/Bank account for the amount of the refund and a
corresponding debit to the Accounts Receivable for the amount of the refund
which reverses the credit entry made to Accounts Receivable when you post
the Credit Note. 

David Cousens



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David Cousens
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