How to do customer refund in R12?
Since customer activities are linked to AR module, it becomes more logical to initiate the refund from AR module itself. In R12, oracle introduced this feature of initialing the refund from receipt screen itself, which automatically creates the AP invoice ( without supplier), so that the payment can be initiated on the same from payables. I am not going into the details on the process steps, since there are number of articles and blogs on this process.
What is the accounting impact on the refund process?
Well this was something that made me scratch my head. This post is mainly intended to discuss this topic since unfortunately i am not seeing any posts on this topic. Also the accounting is not straight forward.
Following are the high level process steps:
1. Refund receipt creation
2. Automated AP Invoice Creation
3. Payment to the customer.
Lets look at the accounting at each step:
1. Refund receipt Creation
Bank A/c Dr ( Remitted Cash)
AP/ AR Clearing Account Cr
2. Automated AP Invoice Creation:
AP/AR Clearing Account Dr
Payables A/c Cr ( Liability)
3. Payment to the customer:
Payables A/c Dr (Liability)
Bank A/c Cr
Well, i hope now you too have started scratching your head :). Yes, the net impact on accounting gets to zero whereas actually the money is paid to the customer.
Ok, so what is the solution ?
After some scratching, I realized that for a customer refund, we need to pick the original receipt and apply the refund instead of creating a new receipt. Before getting to the next step, we need to understand, why are we doing the refund, and what is the status of the original receipt that we would want to do the refund. Following could be the possible scenarios of the original receipt:
1. The receipt would be in On Account / unapplied Status
2. The receipt would have been applied to invoice. Hence Applied Status.
3. There are multiple receipts (and applied to invoices) and we are not able to track the exact receipt from which refund to be made
The accounting entries that I would expect is :
On Account A/c / Unapplied Dr ( instead of Bank)
AP/AR Clearing Account Cr
On AP Invoice
AP/AR Clearing Account Dr
Payables A/c Cr ( Liability )
On Payment to the customer:
Payables A/c Dr (Liability)
Bank A/c Cr
How to achieve this ?
1. If the original receipt if it is Unapplied or On Account status, we need to query the original receipt and do an application to refund. By doing this the accounting will fall in place as discussed above.
2. If the original receipt is applied to the invoice.
Then we need to unapply that invoice and take the funds to unapplied. Now apply to the refund.
3. If we are not able to find out the original receipt ( in case of multiple receipts )
We can create a credit memo. Then create a zero value receipt and apply that receipt to the credit memo and the refund.
Since customer activities are linked to AR module, it becomes more logical to initiate the refund from AR module itself. In R12, oracle introduced this feature of initialing the refund from receipt screen itself, which automatically creates the AP invoice ( without supplier), so that the payment can be initiated on the same from payables. I am not going into the details on the process steps, since there are number of articles and blogs on this process.
What is the accounting impact on the refund process?
Well this was something that made me scratch my head. This post is mainly intended to discuss this topic since unfortunately i am not seeing any posts on this topic. Also the accounting is not straight forward.
Following are the high level process steps:
1. Refund receipt creation
2. Automated AP Invoice Creation
3. Payment to the customer.
Lets look at the accounting at each step:
1. Refund receipt Creation
Bank A/c Dr ( Remitted Cash)
AP/ AR Clearing Account Cr
2. Automated AP Invoice Creation:
AP/AR Clearing Account Dr
Payables A/c Cr ( Liability)
3. Payment to the customer:
Payables A/c Dr (Liability)
Bank A/c Cr
Well, i hope now you too have started scratching your head :). Yes, the net impact on accounting gets to zero whereas actually the money is paid to the customer.
Ok, so what is the solution ?
After some scratching, I realized that for a customer refund, we need to pick the original receipt and apply the refund instead of creating a new receipt. Before getting to the next step, we need to understand, why are we doing the refund, and what is the status of the original receipt that we would want to do the refund. Following could be the possible scenarios of the original receipt:
1. The receipt would be in On Account / unapplied Status
2. The receipt would have been applied to invoice. Hence Applied Status.
3. There are multiple receipts (and applied to invoices) and we are not able to track the exact receipt from which refund to be made
The accounting entries that I would expect is :
On Account A/c / Unapplied Dr ( instead of Bank)
AP/AR Clearing Account Cr
On AP Invoice
AP/AR Clearing Account Dr
Payables A/c Cr ( Liability )
On Payment to the customer:
Payables A/c Dr (Liability)
Bank A/c Cr
How to achieve this ?
1. If the original receipt if it is Unapplied or On Account status, we need to query the original receipt and do an application to refund. By doing this the accounting will fall in place as discussed above.
2. If the original receipt is applied to the invoice.
Then we need to unapply that invoice and take the funds to unapplied. Now apply to the refund.
3. If we are not able to find out the original receipt ( in case of multiple receipts )
We can create a credit memo. Then create a zero value receipt and apply that receipt to the credit memo and the refund.
This is good . Thanks !
ReplyDeleteKeep up good work..
ReplyDelete