Accounting

Recording a refund in Xero

Teaching kids about recording a refund in Xero bookkeeping.

Shaf Azam

— 3 min read
Recording a refund in Xero
Recording a refund in Xero
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This is part of Project Instill, where I teach my kids (12 and 10) financial literacy and business basics.

What did I want to do?

  • I wanted my kids to record a refund that we received.
    • I had cancelled the Elementor plan, for which we received a refund.
  • I wanted to introduce the below concepts:
    • When do we get refunds?
    • How to reconcile refunds?
  • We have already done the following:

Refund Transaction in Bank statement

Below is how the refund transaction hit our bank account.

A couple of observations:

  • The amount refunded was 110.88 USD.
  • The amount that hit our bank account was 181.42 AUD. We are expecting to see this value in Xero bank feed import.
  • Even though the transaction says Value Date: 11/08/2024, the amount hit our bank account on 14-Aug-2024.
    • We expect to see the date 14-Aug-2024 in the Xero bank feed import.
    • We expect to see the date 11-Aug-2024 in the Elementor refund document.

Refund Transaction in Bank feed appearing in Xero

Below is how the transaction appears in Xero.

A couple of observations:

  • The amount 181.42 appears in the Received column of the left section.
  • The bank feed that came into Xero was also dated 14-Aug-2024.

Refund note provided by Elementor

When I cancelled the Elementor plan, below is the document I received from Elementor explaining to me how much was being refunded.

The refund credit note says that 119.88 USD is being refunded.

Note: GST is not being refunded because GST was not collected in the payment I made when I originally purchased the Elementor plan.

How to record a refund in Xero?

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You can not enter a Bill to pay with a negative (-) value in Xero.

The refunds will need to be added by creating a new Invoice.

We have to create an invoice.

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The kids don't yet have access to creating invoices in Xero.

So, I showed this on my screen. This is a kind of pre-training of invoices.
  • Click Business
  • Click Invoices

Click New Invoice

Enter the below details:

  • To (the company name, in this case, Elementor)
  • Issue date
  • Due date
  • Invoice Number
  • Reference
  • Description
  • Price
  • Account: Choose the same account you used when you made the purchase). In this example, I chose the same account, Software Annual, and marked it as a GST-free expense.

The next step is reconciliation.

We will look at reconciling the sales invoices at a later stage.

Next Step

Now it's time to record different types of invoices to see what we can learn next! Check out our next step here.

Read more