A refund is the return of money to a customer for returned goods, cancelled services or overcharges. It reverses the original sale and associated GST/VAT.
Processing refunds correctly is important for accurate financial reporting and tax compliance. When you refund a customer, you need to reverse the original revenue and the associated GST/VAT. This is typically done through a credit note (which reduces the customer's balance) followed by a payment (refunding the money). The credit note ensures the GST/VAT adjustment is captured in the correct reporting period. Refunds affect multiple accounts: revenue decreases, GST/VAT liability decreases and either cash decreases or accounts receivable decreases. For businesses with significant return volumes (like e-commerce), tracking and managing refunds is a major bookkeeping task. Returns policies, restocking fees and partial refunds add complexity. In Xero, refunds are processed through credit notes and overpayment refunds. SortBooks can show which refund transactions match credit notes in Xero, so you can reconcile them and keep the revenue reversal and GST/VAT adjustment correct.
SortBooks helps with the bookkeeping behind refund by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing refund by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
A credit note is a document issued by a seller to a buyer reducing the amount owed. It is used for returns, overcharges, damaged goods or agreed discounts after an invoice has been issued.
Revenue (also called sales, income or turnover) is the total amount earned from selling goods or services before any expenses are deducted. It is the top line of the P&L.
GST is a broad-based consumption tax applied to most goods and services. Businesses collect GST on sales and claim credits for GST paid on purchases, remitting the net amount to the tax authority.
Accounts receivable (AR) is the money owed to your business by customers who have purchased goods or services on credit. It is a current asset on your balance sheet.
Bank reconciliation is the process of matching your accounting records to your bank statement to ensure they agree. It identifies discrepancies, errors and missing transactions.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.