Refunds to credit card

[bkenworthy]

Warning: Debits/Credits are out of balance with invoice amount.

We have two refunds on this month's Visa statement. The refunds go back against two different expense accounts. Neither of those expense accounts has current charges on the Visa statement. How do I enter this transaction in AP? My check amount is $1,800.57. However, if I enter current charges to the proper expense accounts and enter credits to the two other expense accounts for the refunds, my debits/credits are $1,958.01. What issues will the discrepancy cause, if any?

[NeilZ]

Warning: Debits/Credits are out of balance with invoice amount.

We have two refunds on this month's Visa statement. The refunds go back against two different expense accounts. Neither of those expense accounts has current charges on the Visa statement. How do I enter this transaction in AP? My check amount is $1,800.57. However, if I enter current charges to the proper expense accounts and enter credits to the two other expense accounts for the refunds, my debits/credits are $1,958.01. What issues will the discrepancy cause, if any?

Frankly, it doesn't matter that there are no expenses listed for those accounts, you're getting funds back to the general fund of the church.

I'm assuming that you have a liability account setup for the Visa card. If not, please let us know.


Here's what I do, first you process the refunds.

1. Go to Accounts Payable, create a manual check using the original vendor, enter the amount of the refund as a NEGATIVE number. The system will put the amount as a DEBIT to the credit card, assuming you have the credit card assigned to the vendor as a payment method, if not, change the account from the checking to the credit card. Then enter the expense account where the original expense was assigned, this returns funds to that expense account showing that less was spent.

2. Post the manual checks to Funds Accounting.

The liability account will then show a 'positive' balance, which will be drawn down as you put charges on the card. This is fine, as that is normal for such charge cards. You adding the current charges will cover the credit on the statement (refund), and the next statement will show what you are going to owe after that.

So if the refund was 1800.57 and your new expenses are 1958.01, all you should see as a liability is $157.44.

However, if they eventually issue a check to return funds, that involves some additional transactions.

[bkenworthy]

We do not have it set up as a liability. We're a small church with few transactions. The decision was made prior to my involvement to set it up as any other vendor. I get copies of receipts as the Visa card is used and match them up with the statement when it arrives.

[NeilZ]

We do not have it set up as a liability. We're a small church with few transactions. The decision was made prior to my involvement to set it up as any other vendor. I get copies of receipts as the Visa card is used and match them up with the statement when it arrives.

Sorry to hear that. Setting up a credit card liability account takes care of situations like this, and works for all size churches using a credit card. You may want to pass that on to your financial committee or church board.

In any case, a liability account is still the best way to cover this in order to properly return funds to the proper expense accounts

Here's a thread where I went over how to do with back in 2020:

viewtopic.php?f=3&t=14030&p=48403&hilit ... und#p48403

This is from 2017 .. and I explain it a bit better.

viewtopic.php?f=3&t=12784#p41438

[bkenworthy]

To clarify. You're saying there is no way to record these refunds to the proper expense account the way that we are set up? Correct?

Continuing with the debits/credits and check amount as different amounts causes what issue(s)? I'm pretty certain something is going to end up off afterward.

[NeilZ]

To clarify. You're saying there is no way to record these refunds to the proper expense account the way that we are set up? Correct?

Continuing with the debits/credits and check amount as different amounts causes what issue(s)? I'm pretty certain something is going to end up off afterward.

Basically, yes, because you have no where to 'debit' an account to cover the return of 'funds' to allow them to cover future expenses.

Then when you add the new expenses by entering an invoice, you'd replace the normal checking account entry with the liability account. If you look in the previous topics I list, you see how that works. The refunds would add a 'negative' balance to the liability account, then when you add the new expenses, that would add funds to the account, and in the end the resulting balance will reflect the amount due on the statement.

So with a refund of 1500, and new expenses of 2000, the statement should show 200, and the liability account should also reflect $200

Then when you finally write the check to pay the CC bill, you would use the Checking Account as the CREDIT, and the Liability as the DEBIT. This would clear out the liability account.

In future, you would create Vendor records for each place where things are purchased. Normally, most churches use the same vendors over and over, so in this way you can setup the Vendor to automatically add the CC liability account instead of the checking when you enter the invoice. This also adds a layer of audit trail to the system, as you should then be given the CC receipts as they are created, rather than wait for the bill to show up.

It will actually save you time.

[sgbani]

I agree with everything NeilZ has indicated by using a liability account for credit cards. An absolute improvement of a change, even with only a few transactions. It is a pain the first month of transition to get used to the new workflow, but it becomes much easier to handle both refunds, and rewards redemptions.
It does involve one extra accounts payable entry every month, but you can simply use repeating transaction to release and then modify amounts as needed.

Again, I fully agree it is highly advised to work with your board / finance team to work forward a plan to implement this methodology, even if you only have a few transactions per month.


In your case, however, I must diverge from NeilZ in the understanding there is no way to debit an expense account to cover the refund with how you do things now.


I also have transactions in accounts payable, by design, where the invoice amount does not match the total of the debits / credits in the transaction list. I do have to override the warning and double-check EVERYTHING before proceeding.

Our case #1 - prompt pay discount. One of our vendors offers a prompt pay discount. Prefer to show this prompt pay discount as part of the same accounts payable transaction as the monthly invoice because then when that transaction is reviewed / looked at, it is clear what the expenses are for, and why the invoice amount is less than the sum of the expenses.

Our case #2 - internal loan between accounting funds / assets at different financial institutions which requires several entries among numerous account numbers to reconcile; this causes actual money leaving bank account to not equal debits/credits; but this approach is required to create an audit trail of how the money moves within our accounting funds and different asset accounts.

For your situation: my interpretation from the initial description is that you simply enter a singular transaction to the credit card company, with each expense (receipt) listed as a line item in the accounts payable transaction. Meaning, you are not entering an individual accounts payable transaction per expense, but instead, a singular accounts payable transaction to the credit company, and expensing each transaction as a line item. A singular credit to the asset account (checking) offsets all the credit card receipts (which are debits to their respective expense accounts).

Basically, you are simply copying the statement from the credit card as a singular accounts payable transaction to the credit card company as the vendor.

First, as I always do, backup in case I make a mistake, I can restore and try again (or something different).

In this case, if you have a refund, you do what you normally do, enter all the expenses to match the credit card receipts. The expenses would be recorded as individual line item DEBITS to the expense accounts.
Then, you enter the refund as another line item, with its value as a CREDIT to the appropriate expense account.
Lastly, there should only be one line item credit to an asset account to match the amount you actually pay (the invoice amount).

I assume what I've described is exactly what you have done. -> the credits = debits, but they do not match the invoice you are actually paying.

The key point here is that in the Accounts Payable transaction entry, the line item for credit to the asset account matches the invoice amount for the transaction (amount paid via check or EFT).

Yes, the debits/credits do not match the amount being paid, but, the debits do equal the credits, and the CREDIT to the asset matches the invoice amount being paid.

The result is for for the given month, you will see a negative value on that expense account for that month only (which would happen anyway in the liability account method), but your reconciliation of the checking account will be as normal.

I would find this acceptable with significant amount of notes in the transaction and line item descriptions, but not ideal.
Moving to a liability account method as described previously would be best.