Refund Check

What is a refund check?

A refund check returns money to a customer for overpayment, returned merchandise, cancelled services, or credit balances. Issuing refunds closes out customer credit balances and maintains goodwill. Accounting for refunds depends on what created the credit: reversing revenue for returns, reducing cash for overpayments, or clearing liability accounts for deposits returned.

Processing refunds properly

Verify the credit balance is legitimate before issuing a refund. Apply the credit to any outstanding invoices first. If no invoices exist, issue the refund. Record the refund against the same account that created the credit. For returns, debit revenue and credit cash. For deposit refunds, debit the deposit liability and credit cash. Document the reason for each refund.

Refund controls

Refunds present fraud risk because they move money out of the business. Require approval for refunds above a threshold. Verify refund recipients match original payment sources. Review refund reports for unusual patterns. Never refund to a different party than the original payer without investigation. Segregate duties so the person approving refunds is not the same person issuing them.