Accounting Transactions with a Vendor Refund Check

Refunds in IntelliDealer

A refund occurs when money previously paid or recorded in the system must be returned or reimbursed. In IntelliDealer, refunds typically occur when a vendor returns funds due to overpayment, returned goods, billing adjustments, or applied credits.

Refunds can occur in two primary scenarios:

Vendor Refunds – When a vendor sends money back to the dealership to clear an outstanding payable or credit balance.

Customer Refunds – When the dealership returns money to a customer due to overpayment, returned merchandise, or cancelled transactions.

This article focuses on vendor refunds and explains how to record vendor refund checks or electronic payments so that the transaction clears the Accounts Payable balance and is reflected correctly in the bank or cash account.

Description: A vendor refund occurs when a vendor returns money to the dealership to settle an outstanding balance in Accounts Payable (A/P). This may happen due to overpayments, returned merchandise, or billing adjustments.

When a refund check or electronic payment is received from a vendor, the transaction must be recorded so that:

  • The A/P balance is cleared.

  • The refund amount is reflected in the bank or cash account.

  • The vendor's outstanding transactions are properly reconciled.

Solution:

In this scenario, the vendor owes the dealership money because the dealership has paid more than required or received credits that must be refunded. The vendor sends a refund check to clear the outstanding payable balance. As a basic example, let's say Vendor "ABC" had three outstanding invoices for $100.00 each, therefore making their outstanding balance due $300.00. Note that this is a $300.00 credit in your A/P account.

The transactions would have been keyed through a voucher with entries similar to the following:

Expense/Asset account $100.00

A/P ($100.00)

Normally if you paid these above transactions with a cheque, the accounting transactions would be:

A/P $100.00

Bank ($100.00)

In this case, the vendor sends a refund check for $300.00 instead of the dealership issuing a payment. To record this correctly, a credit voucher should be entered so that a debit amount is applied to the A/P account. The account that is used in the distribution lines is up to the dealer to decide, depending on where they would like to see the credit represented.

Expense/COGs/Other account ($300.00)

A/P $300.00

Once this voucher has been updated, all of the outstanding vouchers can be paid off in a cheque run with the newly issued credit voucher, netting the cheque run to $0.00 and clearing the outstanding balance, Note that the same process would be taken if the credit cheque received is less than the total of the vendor's outstanding balance, with the only difference being that the cheque run will not net to $0.00 unless partial payments are done on the vendor's outstanding vouchers.

Note that in this situation, the cheque cannot be used to both pay off vouchers and deposited into the bank, as that would effectively be doubling up the amount of the cheque. If it is preferred to send the cheque directly into the bank, a basic bank deposit voucher can be done.

In this scenario, the vendor already has a credit balance in Accounts Payable, and the vendor issues a refund check to clear that credit. Using the same example from section A), except in this case the vendor "ABC" has a currently outstanding balance of -$300.00. ABC has sent a cheque for this amount, so the balance needs to be cleared out of A/P and the cheque should be deposited into the bank. A voucher must be done to issue an "invoice" into payables for this vendor, with the Cash account being used in the distribution lines:

Cash $300.00

A/P ($300.00)

Once this voucher has been updated, a cheque run can be done to clear the outstanding credit vouchers against this newly issued "invoice", netting them to $0.00 and clearing them out of outstanding. This will also issue $300.00 into the Cash account, and a bank deposit can be done in whichever method the dealer prefers (through Payables, Cash Receipts, or General Invoicing).

Note:  For information about refunds issued to customers, refer to the Customer Refund documentation. Customer refunds are handled through the appropriate sales or receivables processes rather than Accounts Payable.