I have a general question regarding how to log refunds. I have just subscribed to Quickbooks Self Employed and going through transferring all my bank statements and reconciling all the transactions etc. There are several transactions I am unsure how to classify and treat and these are mainly refunds on purchases or partial refunds. I am a sole trader in the UK.
For example:
- order from Amazon for 3 items totalling £40, shows as debit of -£40 (I then classify this as office equipment/cost of goods for resale etc)
- if I returned an item at £15, the transaction shows as a credit of £15 but defaults to "business income". Its not income but not sure how I should treat these original transactions and refunds for book keeping purposes in Quickbooks.
When you receive a refund for a returned item, this should be recorded as a reduction of the original expense, not as business income. For example, if you bought items for £40 and classified it as office equipment, but then returned one item for £15, you should adjust the original office equipment expense to reflect the actual cost after the refund.