Refund of deposit received to different account

How to record refund of deposit originally received into personal a/c but refunded from business a/c

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Hello. I have an issue causing me some confusion that i'd really appreciate some insight into. Unfortunately, i've only just in the last few months had a separate account for my wellness services business (wish i'd done that from the beginning). I mostly ironed out the discrepancies in the data when i opened my Zoho Books account, by using the Opening Balances function. But now one particular transaction has come back to haunt me...

I received a deposit way back in June for a service that was due to be delivered in January. This went into my personal account, as i hadn't yet opened the business account. I've just refunded that deposit as i've had to cancel the service, and i sent the refund from my business account.

I've recorded this as a transfer between the business account and my personal account. This seems to make logical sense, as if i had refunded the amount from my personal account, i would have needed to pay myself back from the business account. What's preventing me from feeling more confident about this solution is the fact that the original deposit i received in June was accounted for in my Opening Balance in Zoho. I'm thinking that this must mean the original amount that i received into my personal account had already been 'transferred' from that account to the business account when i started with the Opening Balance - so am i in fact paying myself back incorrectly? Recording the refund in this way has obviously increased the balance of my personal account within Zoho, but should it perhaps have affected the Opening Balance instead (not sure whether that's even possible/desirable)?

I'd really appreciate it if someone could tell me whether i've recorded this correctly. Many thanks for your attention.

Replies (13)

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By David Ex
01st Dec 2022 11:59

I’m not sure whether you’re trying to manage your affairs without an accountant but, if so, I think your question demonstrates why taking paid for professional advice might be to your advantage.

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By I'msorryIhaven'taclue
01st Dec 2022 12:02

You took the money? Should have opened the box!

Could you perhaps elaborate, using actual amounts and dates and details of any invoices / credit notes raised.

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By Duggimon
01st Dec 2022 12:20

So you received a deposit personally. That's Dr Drawings, Cr creditors. Then you refunded it from the business account, that should be Dr creditors, Cr bank, but you've entered it as Dr drawings, Cr bank, leaving a balance in creditors and you with twice as much drawings as you actually got.

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By msbk
01st Dec 2022 13:27

Thank you all for your responses.

David Ex wrote:

I’m not sure whether you’re trying to manage your affairs without an accountant but, if so, I think your question demonstrates why taking paid for professional advice might be to your advantage.

I'm an entry-level bookkeeper as well as a complementary therapist. I had just started studying for my AAT Level 2 when i took this deposit, I completed that in October, and have only just finalised my AML, PII and ICO. I'm managing my own affairs for the therapy business (to which this issue pertains) because I think it's a good idea to use my own business as a testing ground before trying to work for other people as a bookkeeper. I've gotten on fine so far by conducting my own research when issues crop up, but this is an unusual situation that has confused me and that I can't find existing guidance on, hence asking advice on this forum. Clearly I still have a lot to learn, and unfortunately I'm still having to clear up mistakes I made before I knew any better. Perhaps I should have refunded this deposit from my personal account, but I think I still would have been left with a different confusing issue to solve.

I'msorryIhaven'taclue wrote:

You took the money? Should have opened the box!

I'm not sure what this means...

I'msorryIhaven'taclue wrote:

Could you perhaps elaborate, using actual amounts and dates and details of any invoices / credit notes raised.

On 24/06/22, I invoiced the client for the deposit of £25 to secure the booking of a service to be delivered in January. The client paid this by bank transfer into my personal account on the same day. On 29/11/22, I refunded the client from my business account.

Duggimon wrote:

So you received a deposit personally. That's Dr Drawings, Cr creditors. Then you refunded it from the business account, that should be Dr creditors, Cr bank, but you've entered it as Dr drawings, Cr bank, leaving a balance in creditors and you with twice as much drawings as you actually got.

Thank you. That's what I was afraid of. Unfortunately, I recorded the original receipt of deposit before I was even keeping books beyond a basic list of transactions, so there are no records in Drawings or Creditors accounts in the books, as these accounts didn't exist at the time.

I can see that if there had been a Creditors account for this client at the time, I should have recorded the deposit received as Cr their account and Dr Bank, and then I could have recorded this refund as Dr their account and Cr Bank... but again, this client didn't have a creditor account when the deposit was paid. Would be best solution be to create a creditor account for them now (and record the transaction as above) and enter a journal for why there is no corresponding Cr record of the original deposit received?

Obviously I recognise that I've gotten myself into a silly mess because of not having kept a full set of books until more recently. Doing the AAT was a wakeup call, and I've been trying my best to put my past mistakes right. I've made notes that I think make it pretty clear how I've worked out the shift from that system to a proper set of double entry accounts in proper accounting software. I was hoping that if anyone ever wanted me to explain the balance in the proper accounts at the time of opening (reflected in the Opening Balance in Zoho and in the balance of the account I created for my personal bank account on that system), I could refer them to the basic list of transactions I was keeping before that point. If there's a need to go back and retrospectively create a full set of accounts for before that point, so be it, but obviously I'd rather avoid that if at all possible.

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Replying to msbk:
RLI
By lionofludesch
01st Dec 2022 15:39

msbk wrote:

I'msorryIhaven'taclue wrote:

You took the money? Should have opened the box!

I'm not sure what this means...

Well, Take your Pick.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
02nd Dec 2022 09:24

Heh heh! I'm offering you a blow on the head...

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Replying to msbk:
By Duggimon
02nd Dec 2022 09:30

msbk wrote:
,p.I was hoping that if anyone ever wanted me to explain the balance in the proper accounts at the time of opening (reflected in the Opening Balance in Zoho and in the balance of the account I created for my personal bank account on that system), I could refer them to the basic list of transactions I was keeping before that point. If there's a need to go back and retrospectively create a full set of accounts for before that point, so be it, but obviously I'd rather avoid that if at all possible.

Why is your personal bank account in the business records? Business stuff goes in the business books, personal stuff does not. It's not a business asset or business liability so shouldn't be on the business balance sheet. You must have covered this by level 2 AAT.

I had assumed when you said the deposit was in your opening balance you meant creditor balance.

Essentially then what has happened is you received a deposit from a customer in your personal account and refunded it out of your business account. The refund is drawings, the deposit is nothing and shouldn't appear anywhere and you should take your personal account out of your records entirely.

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Replying to Duggimon:
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By lionofludesch
02nd Dec 2022 09:49

Duggimon wrote:

msbk wrote: ,p.I was hoping that if anyone ever wanted me to explain the balance in the proper accounts at the time of opening (reflected in the Opening Balance in Zoho and in the balance of the account I created for my personal bank account on that system), I could refer them to the basic list of transactions I was keeping before that point. If there's a need to go back and retrospectively create a full set of accounts for before that point, so be it, but obviously I'd rather avoid that if at all possible.

Why is your personal bank account in the business records? Business stuff goes in the business books, personal stuff does not. It's not a business asset or business liability so shouldn't be on the business balance sheet. You must have covered this by level 2 AAT.

I had assumed when you said the deposit was in your opening balance you meant creditor balance.

Essentially then what has happened is you received a deposit from a customer in your personal account and refunded it out of your business account. The refund is drawings, the deposit is nothing and shouldn't appear anywhere and you should take your personal account out of your records entirely.

To be fair, Duggi, the OP says he was using his personal account at the outset and regrets it.

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Replying to Duggimon:
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By msbk
02nd Dec 2022 10:24

Duggimon wrote:

Why is your personal bank account in the business records? Business stuff goes in the business books, personal stuff does not. It's not a business asset or business liability so shouldn't be on the business balance sheet. You must have covered this by level 2 AAT.

I created a record for my personal account in my books because I wanted to show the balance in my personal bank account that related to the business at the time of opening the business bank account and setting up the accounts in Zoho. I can indeed see now that this solution was inelegant at best, and likely just plain wrong. I'm guessing I should have introduced more funds (as owner capital) at the start, and transferred the appropriate amount from the business bank account to the personal bank account, bringing the amount of funds in the personal account that related to the business to zero.

As you can tell, not having separate accounts from the beginning has caused me a lot of unnecessary confusion and has led me to compound that mistake with further mistakes (which is why I'm strongly suggesting to my friends that they get separate business accounts asap).

Duggimon wrote:

I had assumed when you said the deposit was in your opening balance you meant creditor balance.

No, that's what it should have been, but unfortunately my inexperience led me to treat it as sales income, so it's in the balance of the Sales and Bank accounts in the Opening Balances.

Duggimon wrote:

Essentially then what has happened is you received a deposit from a customer in your personal account and refunded it out of your business account. The refund is drawings, the deposit is nothing and shouldn't appear anywhere and you should take your personal account out of your records entirely.

It appears that the solution is to correct the original errors in recording the deposit, and in recording the switch from personal to business account, and then treat the refund in the way you've described. Thank you for your help.

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By Leywood
01st Dec 2022 14:08

You cannot have clients after only level 2 AAT.

You may say you are practising on yourself but who is checking your work?

All prof bodies have strict guidelines you should be following and they can fine you/penalise you in other ways for breaching their rules.

All ok just to do your own books, but having your PII etc is a seriously worrying situation, you are not ready to practise on clients!

How do you treat deposits in your accounts?

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Replying to Leywood:
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By msbk
02nd Dec 2022 09:18

Leywood wrote:

You cannot have clients after only level 2 AAT.

You may say you are practising on yourself but who is checking your work?

All prof bodies have strict guidelines you should be following and they can fine you/penalise you in other ways for breaching their rules.

All ok just to do your own books, but having your PII etc is a seriously worrying situation, you are not ready to practise on clients!

I can have clients after only level 2 AAT, as long as I have my own AML, insurance and ICO registration. I'm not able to call myself a licensed bookkeeper yet, because, obviously, I am not. I am looking at doing work for friends and friends of friends with very small and uncomplicated businesses, who have been either keeping their own books or having their spouse do it. I am in a significantly better position to do this than they or their spouses are, and able to offer personal and personalised assistance that is significantly more affordable to them than that of a fully qualified accountant, but still valuable given the small scale and simplicity of their operations. I have obtained the AML etc so that I can do this legally and with appropriate protection in place.

One of my friends who agreed to let me look over his books recently had been paying a fully qualified accountant who had just retired. Even I, with my limited knowledge and experience, could see that this accountant had failed to give him important information about his tax obligations, and had left his books in a disorganised mess. Being a member of a professional body clearly does not automatically prevent bad practice.

I appreciate that you may be motivated by a desire to protect your profession from unregulated charlatans. I am neither. I am attempting to make a slow and small scale start with this work for people I already know and who know I am still a beginner, having gained a basic qualification and preparing for further study. In the meantime, I am learning what I can from keeping my own books and looking at those of my friends', and dealing with issues as they arise. Hence visiting this forum in the hopes of receiving some pointers on the specific issue I've mentioned. I am rather shocked at the level of hostility that I've received in response. Thankfully, some other people have responded with helpful advice that is actually pertinent to my question, and that appears to be pointing me in the right direction to improve my understanding.

D V Fields wrote:

Follow the money.

...

Hope this helps.

Thank you, this is very helpful indeed. It seems my main mistake was in not recording the opening balances correctly - mostly because I obviously didn't have a proper set of accounts from which to take the proper data. I can see now that the deposit was swallowed up into Bank, when it should have been recorded as a liability. This is the only time I've ever taken a deposit for a service, and I clearly failed to recognise that I hadn't treated it correctly at the time. Thank you for clarifying the nature of the error and how I can go about putting it right.
I will look at this issue again using the approach you've outlined, which I think will set me straight. Many thanks for taking the time to help me unconfuse myself.

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By D V Fields
01st Dec 2022 14:11

Follow the money.
You received money from a client into your personal account (for reasons given). Your business at this point is unaware. You then refund this money from the business, which notwithstanding later actions it did not receive. Regardless of where you “posted” this to your business did not have the original funds so needs to receive it. At this point paying the money from personal funds into your business account would achieve this.

Now to the opening balances. You say the deposit is in these opening balances. But where? These balances should have related to the full balance sheet as at that date. The “deposit” should have been shown as a liability (credit balance). Thus when you repaid it the balance will clear. Its opposite entry would be in bank, but only if at some prior point you had paid it into the business bank account, otherwise you would have needed a debit entry to reflect the fact that you owed the business the money. Remember you should be able to reconcile your bank account to your bank statement and must “correct” any reconciled amount soonish.

Review your actual bank entries - personal and business for this and then review the composition of your opening balances. The answer will be there.

Hope this helps.

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By SXGuy
01st Dec 2022 15:12

So the deposit happened prior to your opening balance then clearly there's a missing double entry.

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