Accounting for Customer Overpayments


W

Will

A customer's credit card is accidentally charged twice, and the overcharged
amount is deposited to the seller's bank accounts. The mistake is caught
four days later and reversed. What is the best way to do the accounting for
these transactions?

One of the two charges is correct and is used to pay off an open invoice,
clearing the accounts receivable. Where should the second charge that is in
mistake go? Would it be better to make this deposit an Other Current Asset
or Other Current Liability up until it is cleared by the credit to the
customer's card?
 
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K

Ken Russell

I would create a clearing account if you don't already have one, and
transfer the second charge to that account. That way, you have a balance
sitting in the clearing account until you process the adjustments, which
should go to this same account to clear the balance. All the entries are
then quite visible and reconcilable.

Ken Russell

(e-mail address removed)
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..
 
W

Will

My question was should the Clearing account be a current asset or
current liability.
 
K

Ken Russell

Take your pick, It doesn't matter much. The account will end up with a zero
balance; if it has a balance at year-end it will be classified either as an
asset or liability depending on whether it's a debit or credit balance.

--
Ken Russell

(e-mail address removed)
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..
 
?

!-!

Actually, it can be very convenient to make the clearing account a
"Bank".
 
W

Will

I like to use a Bank account when the money in question is actually leaving
the account. For example, you deposit a check written on a UK bank to a
U.S. bank. The next day the bank takes the money out of your account and
tells you that they are waiting for the check to clear before releasing
funds. Six weeks later, the money is deposited back in the account (I
actually had a check written on a UK bank take this long to clear!).

So money is received against an invoice to clear the accounts receivable and
deposited to your normal bank account. The next day you move the money
over to the Bank account with a name like "Checks Waiting to Clear". This
gives you a clean accounting for why the money no longer appears in your
daily balance for the primary bank account, but you don't lose it off the
balance sheet.

The case I was asking about is one where the money *stays* in the bank
account. So you double charge a customer, and the money really does come
into your bank account and stays there until you elect to credit it back to
the customer's credit card. In this case you don't want the paper trail
to leave your primary bank account.
 
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B

Beverly

I'd treat it as a liability since it is money you owe back to your
customer.
 
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R

R

Setting up another account would just create clutter in your chart of
accounts. I would recommend that you just apply the overpayment to
the customer's account (Dr to cash, Cr to A/R). The credit balance
will show on the customer's account (and statement). This is where it
should show. Your accounting records will reflect the economic
activity that occurred.

When the charge is reversed, then an entry will bring the customer's
account back into balance... (Dr to A/R, Cr to cash).

A final thought... if everything cleared in four days, then besides
maintaining your customer's goodwill, it really won't matter (unless
the timing of the events crosses over fiscal periods)

Just my thoughts...

Regards,
Russell Tuncap, CMA, CPA
 

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