What is the best way of dealing with a large refund for overcharges from the last 3 years from an electricity supplier.
Replies (4)
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The simple answer is to put it in the bank and then spend it as you see fit. But maybe you are asking from another point of view?
Sundry Income
It would depend on the sum(s) involved.
Unless it's a significant amount to justify opening up and repairing prior years, we have, in practice, just put these type of things to Sundry Income.
Negative expense
If the previous accounts were thought to be correct at the time, there is no justification to amend them in the light of subsequent events.
I would simply credit the refund to the electricity expense account wher you posted the (over)charges in the first place.
If the OP is asking about how to account for such a refund received by a business, I would credit it against the expense it relates to. I would not credit to sundry income because it isn't. It's a retrospective adjustment to an expense.