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How to enter a refund to a credit card?

BarbRdg

We recently received a refund to an airline ticket purchased in Jan 2020. For credit cards, I just pay them as a monthly bill through the checking account and split the payment into separate categories for budget tracking. How do I enter this refund, which offset several current purchases on the credit card, and still track the categories for those purchases? I manually enter this credit card bill each month.

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Tom Young

You enter the refund as a form of "payment" in the credit card Account. You split this amount among the various Categories that you used when you originally incurred the charge, or charges.

volvogirl

There is a MUCH better way to do it. You should not be splitting out the payment.

Just in case you are entering your credit card bills the wrong way…..

The proper way is to set up a credit card ACCOUNT and enter the charges into it when the purchase is made and assigning it to a category. Then when you pay the credit card bill you TRANSFER the payment from your checking account to the credit card account (not a category). Then if or when you download the payment from the bank you match it to the one you already entered.

When you enter the payment in your checking account you put the credit card account name in for the category using square brackets around the name to indicate it is a transfer...like this… [credit card] or newer Mac versions have a separate Transfer column.

I used to do it the wrong way for years! Then I wised up and now enter them properly. I would split my credit card payment into all the categories on one transaction in my checking account. And since I always pay more than the bill I would need to figure the difference and put it to another category. But then I needed to have them entered on the date the charges actually happened. So I finally set up a credit card account. It makes it much easier to enter and balance!

And if you split your credit card payment into the categories and some of the categories are Transfers to the same Account it will lump all them together and make 1 transaction in the Transfer Account.

Tom Young

@volvogirl

They are not splitting out a payment, they are splitting out a refund. You have only two choices when you enter a transaction in a credit card Account: you enter it in either the Charge column, which increases your liability, or you enter it in the Payment column, which reduces your liability.

The OP must use the Payment column here to reduce their liability, but that doesn't really make it a "payment" in the strict sense of the term, which involves a transfer of cash from the checking Account to the credit card Account.

volvogirl

Quote.......For credit cards, I just pay them as a monthly bill through the checking account and split the payment into separate categories for budget tracking.

BarbRdg

Sorry, but neither of you have answered my question. I don't feel I need to set up credit card accounts for my household cards. I can see that a business would need it. I don't need to track every transaction in the credit card; I just group the transactions by categories like 'restaurants', 'groceries' etc for budget tracking purposes.

jrich75

As @Tom Young said, you would enter the refund as a payment. The categories you use would be the same categories you used to make the original purchases. That way the payment (refund) would offset the initial charge. If you are doing this when paying the bill, the refund would reduce the amount of the actual payment.

UKR

BarbRdg said:

Sorry, but neither of you have answered my question. I don't feel I need to set up credit card accounts for my household cards. I can see that a business would need it. I don't need to track every transaction in the credit card; I just group the transactions by categories like 'restaurants', 'groceries' etc for budget tracking purposes.

In that case, the credit card company is going to throw a monkey wrench into your simplified recording scheme. Most likely, they're not going to automatically refund you the overpaid money. They're going to reduce the amount of the monthly balance due and, if you spent less this month than you received as ticket refund, your credit card account will be overpaid for a while, running a credit balance.

Let's say that you recorded that airline ticket as a split on your credit card payment transaction in the checking account:

Vacation $1000.00
Groceries $200.00
Other $250.00

If you have more charges this month than you have received as refund then you can simply record
Vacation $-1000.00
Groceries $200.00
Auto Repair $1500.00
Other ...

If you have less charges this month than the refund amount, you can book a part of the refund amount
Vacation $-500.00
Groceries $300.00
Other $200.00
and end up with a zero amount payment.
Carry the remaining refund amount ($500) to next month's payment transaction.

It's up to you if you want to follow @volvogirl 's recommendation about recording each credit card purchase in separate credit card account registers or if you want to continue to set up and use a complicated multi-line split transaction.
I have, for as long as I have used Quicken and predecessor financial software, recorded my credit card transactions in their respective account registers. Credits, refunds, cash rebates, whatever ... each is a single register transaction. I find that much easier to do than set up and try to maintain a lengthy split register transaction.

Tom Young

@BarbRdg

I missed the fact that you weren't using a credit card Account. I'd strongly advise that you do. But the accounting is exactly the same if you're accounting for everything through your checking Account.

In this case you'd have a Deposit in your checking Account, (assuming you get the refund as a check), split that deposit, and parcel out that dollar amount among the various Categories.

Now in the more complicated situation where you don't get a refund as a separate check and it's simply applied against your otherwise outstanding balance, the situation gets a little more difficult. Eventually that refund will get "used up" by subsequent charges and eventually you'll receive a credit card statement with an amount due.

For sake of discussion let's say that credit card statement has an amount due of $100 and when you analyze your bill (or bills, if the refund is large enough), you see that that $100 is comprised of $300 of charges and that $200 refund. In that case you'd enter the $100 as a payment in your checking Account, split the payment, enter the distribution of the $300 against the correct Categories, the also enter the $200 assigned to the correct Categories as negative amounts.

That will make the "net" of all the splits amount to the $100 payment and all your Categories, cumulatively, will be correctly stated.

Tom Young

@volvogirl

You were right, and I was wrong. My apologies.

volvogirl

Here's a list of some reasons why you should set up credit card account. And I don't use it for Business.

You don't have to wait to make the payment and split it out

You won't run out of split lines (I used to use Q2004 and there was only 30)

You can use both the payee and memo fields for more description

You don't have to figure out the difference if you pay a different amount

Then your Credit Card Account will exactly match your statement

Charges get entered with the right date (better at year end for taxes)

You can enter all charges to date, not just what's on the bill - then you can see what you still owe

You won't forget what a charge was for if you enter it right away from the receipt

And if there are multiple categories purchased on a single credit card charge, you can split that one credit card charge to detail the items purchased each with their own category and memo/note.