Syllabus Edition
First teaching 2025
First exams 2027
Recording Refunds (Cambridge (CIE) IGCSE Accounting): Revision Note
Exam code: 0452 & 0985
Refunds to credit customers
When is a refund given to a credit customer?
A refund may be given to a credit customer
when their account has a credit balance
if they have overpaid for their goods
if they have returned goods after paying for them
How do I record a refund in the ledger accounts?
Credit the cash or bank account in the nominal ledger
This is because the business is paying money to the customer
The asset is decreasing
Debit the trade receivable's account in the sales ledger
This is to reduce how much the business owes the customer
The asset is decreasing
Business document | Book of prime entry | Account to debit | Account to credit |
|---|---|---|---|
Bank statement or cheque counterfoil | Cash book | Trade receivable's account | Cash or bank account |
Case Study
Tina is a sole trader. Tina allows a 10% cash discount if goods are paid for within a month.
On 1 January, Dale buys goods on credit costing $500 from Tina. Tina records this by debiting Dale's account and crediting the sales account.
On 15 January, Dale forgets about the cash discount and sends Tina a cheque for $500. Tina records this by debiting $500 to the bank account. Dale is still entitled to the discount so Tina debits $50 to the discount allowed account. Tina balances this by making credit entries in Dave's account totalling $550.
On 22 January, Dale asks for a refund for the $50 extra that he paid.
On 23 January, Tina sends Dale a cheque for $50. Tina records this by crediting the bank account and debiting Dale's account.
Here are how the entries appear in Tina's books.
Sales account
Date | Details | $ | Date | Details | $ |
Jan 1 | Dale | 500 |
Bank account
Date | Details | $ | Date | Details | $ |
Jan 15 | Dale | 500 | Jan 23 | Dale | 50 |
Discount allowed account
Date | Details | $ | Date | Details | $ |
Jan 15 | Dale | 50 |
Dale account
Date | Details | $ | Date | Details | $ |
Jan 1 | Sales | 500 | Jan 15 | Bank | 500 |
Jan 23 | Bank | 50 | Jan 15 | Discount allowed | 50 |
Refunds from credit suppliers
When is a refund received from a credit supplier?
A refund may be received from a credit supplier
when there is a debit balance on the supplier account
if the business has overpaid for their goods
if the business has returned goods after paying for them
How do I record a refund in the ledger accounts?
Debit the bank account in the nominal ledger
This is because the business is receiving money from the customer
The asset is increasing
Credit the trade payable's account in the purchases ledger
This is to reduce how much the business is owed by the supplier
The liability is decreasing
Business document | Book of prime entry | Account to debit | Account to credit |
|---|---|---|---|
Bank statement or cheque | Cash book | Cash or bank account | Trade payable's account |
Case Study
Chris is a sole trader. Chris buys goods on credit from Maisy.
On 1 May, Chris buys goods on credit costing $200 from Maisy. Chris records this by crediting Maisy's account and debiting the purchases account.
On 4 May, Chris pays Maisy for the goods using a bank transfer. Chris records this by crediting the bank account and debiting Maisy's account.
On 11 May, Chris returns goods worth $50 to Maisy and requests a refund. Chris records this by crediting the purchases returns account and debiting Maisy's account.
On 13 May, Chris receives a refund of $50 from Maisy by a bank transfer. Chris records this by debiting the bank account and crediting Maisy's account.
Here are how the entries appear in Chris's books.
Purchases account
Date | Details | $ | Date | Details | $ |
May 1 | Maisy | 200 |
Bank account
Date | Details | $ | Date | Details | $ |
May 13 | Maisy | 50 | May 4 | Maisy | 200 |
Purchases returns account
Date | Details | $ | Date | Details | $ |
May 11 | Maisy | 50 |
Maisy account
Date | Details | $ | Date | Details | $ |
May 4 | Bank | 200 | May 1 | Purchases | 200 |
May 11 | Purchases returns | 50 | May 13 | Bank | 50 |
Unlock more, it's free!
Was this revision note helpful?
