Processing a Vendor refund check

This procedure should be used when you receive a refund check from a vendor for an open accounts payable balance.  This situation normally occurs when you have a negative open AP balance for the vendor and a check is issued by the vendor to clear this balance.

•      Verify that you have a refund clearing account set up in the general ledger.  This account (which should normally have a zero balance) is used when applying cash received from the vendor against the AP invoices for the vendor.

•      Use the journal entry program to record the cash received from the vendor.  A debit for the amount of the refund check should be posted to the appropriate cash account, and a credit for the same amount should be posted to the clearing account mentioned in the prior step.

•      Create a positive AP invoice for the amount of the refund check using the vendor that the check was received from.   Apply the invoice amount to the refund clearing account (this will have the effect of crediting the accounts payable account and debiting the refund clearing account).  Once this step is completed, the net vendor open AP balance should be correct, and the refund clearing account balance should be 0.  Note: You should use a non-taxable AP tax code for this “refund” invoice to make sure that the system does not calculate sales tax or vat.

•      Use the Apply AP Credit Memo program to apply the invoice created in step 3 to the credit memo that the refund was issued for.  This step closes the invoices and completes the process.

More:

Verifying that an invoice was posted properly