USA How to post a refund / reimbursement

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Hi there,

At the agency that I work for, my manager is telling me to credit a "Due To/ From receivables" account for refunds that we get, rather than crediting the original expense account. It doesn't make sense to me, but according to her, I'm supposed to know this. She's been living in a bubble for the last 30 years and thinks all companies operate like this. Does anyone else do this? If so, can you provide some insight? Thanks so much!
 

smallbushelp

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GAAP says that refunds that are adjustments of amounts previously paid should be credited to the expense account where the original purchase was posted. However, if the expense was originally incurred in a prior fiscal year, the refund should be booked as other income. What type of account is this "due to/from receivables" account? I've never heard of that.
 
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So, after thinking over it for a bit, I realized why I was confused. I have been so used to working with cash accounting; my new job uses accrual accounting. So the "due to/from" account acts as a receivable once the transaction happens. The J/E would be DR due to/from, CR expense account. When the money is received, then the J/E is DR cash, CR due to/from, canceling each other out. I've only read about accrual accounting; even in school I remember all the homework and tests instructing me to assume the cash method. This is my first experience in the real world using the accrual method! :)
 

smallbushelp

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That's one way to do it I guess, but it sounds like an extra step. Have fun.
 

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