Readers Question: I was wondering how do I record refunds that I give to clients for services not received in my accounts. Should I amend the invoice or does it go on my expenses side?
Expert Answer: The expert for this question was Jeremy Greene from GoSimpleTax.
To record refunds that you give to clients for services not received in your accounts, you would need to record them as a credit note against the income recorded previously against the client in question. If a sales invoice has been raised in your bookkeeping software, you will need to raise a credit note.
To record a refund given to a client you should to do the following;
- Record a credit note for the value of services not rendered.
- Refund the Credit note to the client if they have paid the original invoice in full.
If the original invoice is unpaid or has an outstanding balance against it, apply the credit note to the invoice to clear some or all of the balance. Alternatively, if you use Cash Accounting:
- Record an income transaction with a negative value equal to the refund.
If the original transaction included VAT, recording the refund would reduce your VAT liability.
Should I amend the invoice?
You shouldn’t amend the invoice as the customer has had the original and included it in their bookkeeping records. Keep the original invoice unchanged to maintain its integrity and raise a credit note.
Does it go on my expenses side?
No this won’t go on your expenses as this refund is in effect a reduction in the sales of the business. It needs to be shown either as a negative income or a sales credit note.
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