how to properly code a refund - personal banking

example. 1) I charged travel to my credit card - and for the debit (expense) I used the category travel. 2) plans were canceled and full refund was credited (income) to the same credit card. ANY type of refund/return I have been using "Personal Income/Returned Purchase in the category column...which for example I use if I buy and then return something to AMAZON.

I realized my "mistake" with the categorization because my monthly expenditures for the month still reflects the original expense when I put the travel costs on my credit card. Using "personal income/returned purchase", while properly crediting the account - did NOT correctly recalculate expenditures for TRAVEL.

So, I went back in and re-categorized the CREDIT as TRAVEL and my travel category summary calculation for the month is correct.

The problem is - I have a year's worth of using "PERSONAL INCOME/RETURNED PURCHASE" use as categories for CREDITS/Returned Purchases - thus - if I am thinking correctly - this means my expenditure reports per month for things like HOME or SHOPPING that results in something being returned/refunded are all wrong?

I originally used PERSONAL INCOME/RETURNED PURCHASE because I thought I wanted to be able to see any credits/refunds - so - on my original example above - I used the tag #refund?

Does any of this make sense? Is there something else I should be doing?

I did see in the TAX SCHEDULE report that the money for the year that has been from refunds in the category PERSONAL INCOME/RETURNED PURCHASE is not included in my personal income for tax purposes - however - as stated - my expenditures are I'm guessing inflated by the amounts of returns/refunds that I have coded as a CREDIT to PERSONAL INCOME and not the category such as TRAVEL that the original debit was credited?

thanks for any help

Answers

  • RickO
    RickO SuperUser, Mac Beta Beta
    I think you are on the right path now. Use the same category for refunds that you used for the original expense. Using a tag as you mention could be helpful, although you could find refunds in expense categories simply by filtering for positive amounts. For example, if you do a search in a register for category TRAVEL, you would see all expenditures and refunds (negative and positive amounts). If you then invoke the Type:Income filter, you would see only the refunds.

    Whether you want to go back and correct all your PERSONAL INCOME entries to make your expense reporting more accurate is a matter of choice. If you do decide to do that, if you have a group of PERSONAL INCOME category transactions that you need to change to the same regular expense category, you can select them all (shift-click or command click) and then hit menu File>Get Info which will let you batch change the category (as long as none of the transactions are split transactions).
    Quicken Mac Subscription; Quicken Mac user since the early 90s
  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    Hi @jlabenberg

    You said: "I realized my "mistake" with the categorization because my monthly expenditures for the month still reflects the original expense when I put the travel costs on my credit card. Using "personal income/returned purchase", while properly crediting the account - did NOT correctly recalculate expenditures for TRAVEL."  AND "this means my expenditure reports per month for things like HOME or SHOPPING that results in something being returned/refunded are all wrong?"

    These statements are absolutely correct, by classifying refunds as income it distorts your financial picture, but - as you indicated thankfully does not afffect your income tax calculations/reporting.

    The correct way to fix this is to edit those transactions to have both the original charge and the subsequent refund hit the same category.  If the number of refund transactions is so large that you don't want to spend the time editing individual entries, you could decide, for example to make corrections by month in each category, as an "adjusting entry", rather than edit each and every transaction.  That will keep all your reports correct on a monthly basis and will save you some time. 

    Let me know of you have any followups.

    Frankx

                      Quicken H&B-Subscription Ver. 34.24 - Windows 10-Home Version
                                             - - - - Quicken User since 1984 - - - 
      -  If you find this reply helpful, please click "Helpful" (below), so others will know! Thank you.  -

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    As far as the "clean up" of past transactions go, you might be able to use Edit > Find/Replace to make the process go quicker.
    In the Find and Replace select "Find" = Category and "Exact" in the next box and enter INCOME/RETURNED PURCHASE as the target.  That will find every instance of your usage of this Category.  Below the window of found transactions click on "Clear All."  At that point you can select individual transactions to change the old Categorization to the correct Category.
    Of course this will only work if you can look at a transaction, remember exactly what the transaction was for, and then use the correct Category.  Unless you've used the Memo field to explain what each you bought with each purchase this could be an impossible task.
  • RickO
    RickO SuperUser, Mac Beta Beta
    Tom Young said:
    As far as the "clean up" of past transactions go, you might be able to use Edit > Find/Replace to make the process go quicker.
    This is for QMac. There is no Find/Replace. You can replace the category in multiple transactions using File > Get Info, but it will not process categories in split transactions.
    Quicken Mac Subscription; Quicken Mac user since the early 90s
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    RickO said:
    This is for QMac. There is no Find/Replace.
    Yep, my mistake.

  • jlabenberg
    jlabenberg Member ✭✭
    thank you all for the responses - i rarely take notice of the graphic pie chart in HOME at the top of the screen because for me month to month my categorical expenditures are always in the same ballpark - and - it's been probably 2 years since I spent a significant amount on TRAVEL which I then cancelled (but didn't) so my pie chart showed a huge piece of the pie with TRAVEL even after I entered the refund - so - now it's time to go through and make corrections - luckily - I almost always use the comments to describe the exact thing I spent money on - especially in split transactions - and as for the edits - all i need to do is search for PERSONAL INCOME/RETURNED PURCHAS category which I used incorrectly but consistently to make my changes! It drops my perceived monthly income of course but more accurately describes my expenditures
  • jacobs
    jacobs SuperUser, Mac Beta Beta
    @jlabenberg As others have noted, it's best to use the same category for a refund as you did for the original payment, to "zero out" the expense. Here are a few other suggestions...

    1) I use text in the Memo/Notes field to always note "REFUND" and the reason, such as "REFUND for 6/1/21 purchase returned in October". If I want to quickly look ay my refunds, I just type "Refund" into the Search box and can see them all.

    2) If you have a concern that the expense being in one month and the refund being in a later month will mess up any reporting you do, there is a way around that. (This may be more important if the expenditure and refund occur in two different years, such as a December purchase refunded in January.) The way to deal with this is to create an Asset account; I call mine "Exchange", accountants often call it "Suspense", but you can call it anything meaningful to you. Here's how to work with such an account.
    • When you realize a purchase has been made which is going to be refunded or credited back, change the Category from the normal expense category to a transfer to your asset account. (In my case with an account called Exchange, this would be a category of "Transfer:[Exchange]".) Now that the purchase is a transfer, it is not an expense in any Quicken reports.
    • When you receive the credit or refund, record the deposit (if it's a check refund you deposit) or credit (if it's a credit card refund) in the appropriate checking or credit card account, using a transfer to the asset account again as the category.
    The nice thing about using such an asset account is that whenever it shows a non-zero balance in the left sidebar, it's a reminder that there is some refund which is pending. (Or if the refund was received, it alerts you that the refund was not categorized correctly.) Now, if you have a handful or less of refunds per year, you might find this approach overkill. But if you have more, you might find it helpful to keep track of any promised/pending refunds.

    If you do create such an asset account, you can also use it for some other accounting situations in the same way. Let's say you pay a $1,000 deposit this month for a vacation for next summer, but you would prefer to keep all of next year's vacation costs in next year, not split between this year and next year. You can use the same approach as above to "time shift" your expense. Record the deposit you paid this month as a transfer to the asset account. In January or June of next year, create zero dollar transaction with two splits: a positive transfer to the asset account and a negative to the travel or vacation category. What this achieves is recording the travel expense next year rather than this year, even though you paid out the deposit this year.

    You can also use such an asset account if you pay for something where someone else is sharing the expense. For instance, I sometimes buy concert tickets for ourselves and friends who are going to pay me back. I record the entire purchase amount in my credit card account, with a split transaction that has one split for our share of the entertainment expense and a second split which is a transfer to the asset account for what my friends owe me. When the friends pay me back, whether it's next week or next month or next year when we go to the concert, I record the deposit as a transfer to the asset account. Again, this insurers I'm only generating an expense for my portion of the bill, and lets me keep an eye on the asset account for any payments I am owed. 

    Sorry, I went way off the original topic there talking about multiple uses for an asset account for a variety of purposes. If none of that seems relevant to you, please just disregard. ;)

    Quicken Mac Subscription • Quicken user since 1993
This discussion has been closed.