How-to · Vendors and bills
How to record a vendor refund
Record a refund from a vendor as a deposit: debit the bank and credit the account the original purchase was charged to, such as the expense or inventory account. That reduces the cost you recorded instead of showing the refund as income.
How-to guides / Vendor refund
The accounting behind it
A refund reverses part of a purchase. Crediting the original expense account leaves the expense at its true net amount, which is what your profit and loss should show.
If you had already entered a vendor credit for the same amount, the refund settles that credit rather than the expense. Settle the credit first (see the note below) so the cost isn't reduced twice.
Refunds of a deposit you paid (a prepaid booking, a utility deposit) go back to the asset account where the deposit sat.
| Account | Debit | Credit |
|---|---|---|
| Bank | Refund | |
| Expense (original account) | Refund |
Worked example: a $180 software refund
You paid $180.00 for a year of software, coded to Office Supplies, then cancelled within the refund window. The vendor refunds $180.00 to your bank account.
| Account | Debit | Credit |
|---|---|---|
| Checking | $180.00 | |
| Office Supplies | $180.00 |
Common mistakes
- Coding the refund to Other Income, which overstates both income and expenses.
- Recording a vendor credit and then a refund deposit against the expense, which reduces the cost twice.
- Missing the sales tax or GST/HST part of the refund.
- Recording a card refund as a bank deposit when it went back to the credit card.
In the US and in Canada
United States
If the original purchase included sales tax that the vendor refunds, credit it to the same account it was expensed to.
Canada
If you claimed an input tax credit on the original purchase, reduce it by the GST/HST refunded. Split the deposit: price to the expense account, tax to your GST/HST input tax credit account.
In AcboBooks
AcboBooks 0.2.1 has no separate vendor refund command, but Make Deposit takes the vendor and any expense account.
- Open Make Deposit. Go to Banking → Make Deposit and choose the bank in Deposit to and the Date.
- Add the refund line. On a line, choose the vendor in Received from, choose the original expense or inventory account in From account, add a Memo and the Amount. In Canada, add a second line from GST/HST Paid (ITC) for the tax refunded.
- Save. Click Save Deposit.
- Refund to a card. If the refund went back to your business credit card, use Banking → Enter Credit Card Charges, choose Type Refund / credit, the vendor in Purchased from and the original account, then click Save Credit.
If you had already saved a vendor credit for this amount, void it in Vendors → Vendor Credits before you record the deposit, so the cost isn't reduced twice. Make Deposit can't post to Accounts Payable in 0.2.1.
Menu names are from AcboBooks 0.2.1. Not using it yet? Try it free for 15 days, with the sample company to practise on.
Questions
Is a refund from a vendor taxable income?
No. It reduces the expense you deducted. Post it back to the original expense account.
What if the expense was in a previous year?
Still credit the same expense account; it lowers this year's expense. Your accountant may show it differently if it is large.
The vendor credited my card instead of sending money. What now?
Record a card credit (Enter Credit Card Charges, Refund / credit) to the original account.
Related how-to guides
Terms used here
- How to record credit card payments and fees
- Chart of accounts for small business
- Accounts payable in AcboBooks
Updated October 25, 2026. General bookkeeping information, not tax, legal or accounting advice. Rules differ by state and province and change over time; check with the IRS, the CRA or your accountant for your own situation.
Get started
Entries like this, done in the right screen.
AcboBooks is desktop accounting for US and Canadian small businesses, bought once and kept on your own PC.
No card. No account. Nothing to cancel.