10.2 Return Controls and Refunds
Key Takeaways
Customer return management tracks the authorization, approval, receipt, and closed lines. Customer credits and refunds then issue the credit memo or pay the refund.
With Refund in Advance of Return disabled, a return that contains only receivable items stays off the refund list until those items are received. Items that are not receivable can be credited once the return is approved.
When Advanced Receiving is on, Restock Returned Items checks the Restock box on receipts by default, and Write-Off Account for Returns is the account used when a returned item is written off.
Applying a credit memo deducts the credit from an open invoice or cash sale. Refunding a cash sale uses a cash refund at Refund Cash Sales, and that cash refund is not generated from a credit memo.
A stocked item billed on an invoice is authorized, received, and then credited with a credit memo. A cash-sale return of a stocked item is authorized, received, and then paid back with a cash refund.
Authorize, then receive, then credit or refund
Customer returns use two processes on one authorization. Customer return management tracks what is coming back: items, prices, approval, receipt, and lines to close. Customer credits and refunds issues the credit memo or pays the refund. The process runs from the customer's request until that customer is credited or refunded. You track what you expect, whether it reached inventory, and how much to credit or pay.
The order for a stocked item is authorize, receive, then credit or refund. Issuing the authorization starts the file, standalone or linked to the original cash sale or invoice. Approving it permits staff to process the return and approves the customer to be credited or refunded upon receipt. Receiving verifies arrival. Issuing a credit memo logs the credit. Refunding repays the credited amount. Closing line items drops quantities you no longer expect.
Non-inventory items can be returned and credited too. They do not wait on a warehouse receipt the way receivable inventory does. With refunds in advance turned off, accounting holds the credit memo until the warehouse receives the item. Starting the return from the original sale copies price and quantity, and the receipt updates stock levels and inventory values from that authorization.
Preferences that change the gate
Return preferences are set at Setup > Accounting > Preferences > Accounting Preferences, on the Order Management tab.
Default Return Authorization Status fills the status on a new authorization. Select Pending Approval when the company approves returns. Select Pending Fulfillment when it does not. Approve returns at Transactions > Customers > Approve Return Authorizations: enter Returns on or Before, check Approve, and submit. Approve Return on the open record approves a single authorization.
Refund in Advance of Return permits a credit or a refund before the item is returned. With the preference off, orders that include only receivable items do not show in the refund list. Orders that contain items that are not receivable show upon approval, because those items can be refunded without a receipt. With Advanced Receiving on, you receive the items before you credit the customer, and you credit only the quantity received.
Restock Returned Items checks the Restock box on receipts by default when Advanced Receiving is on. Clear it when each receipt must be checked by hand. Write-Off Account for Returns is the account posted when a returned item is written off instead of restocked. Restock puts the unit back into on-hand stock. A write-off expenses it through that account. The receipt is still the inventory document.
Enforce Minimum Quantity on Return Authorizations, on the Items/Transactions tab under Other Item Preferences, makes the return meet the item's minimum order quantity. An item sold only in fives cannot be authorized for a return of two.
Records created at each step
| Step | Record created | Inventory effect | Cash or accounts receivable effect |
|---|---|---|---|
| Authorize | Return authorization, standalone or linked to the sale | None. The authorization is non-posting | None until a credit memo or cash refund |
| Approve | Same authorization, now past Pending Approval | None | None. Approval permits the later credit or refund |
| Receive a stocked item | Item receipt | Debit inventory asset and credit cost of goods sold for the amount paid | None on the receipt |
| Credit an invoice return | Credit memo from the credit-form authorization | None on a memo created from the authorization | Debit sales income and credit accounts receivable |
| Refund a cash sale | Cash refund | None on the refund | Debit sales income and credit checking or undeposited funds |
| Refund an invoice credit in cash | Customer refund from Refund on the credit memo | None | Pays the customer after the memo reduced accounts receivable |
| Close leftover lines | Closed lines on the authorization | No further receipt | No further credit for the closed quantity |
Receiving the return
Go to Transactions > Customers > Receive Returned Order, select the customer, check Receive, and click Submit. On the item receipt, confirm the customer and the authorization number in Receipt of, and confirm quantities. With Multi-Location Inventory, each line needs a location. Save posts the receipt. Save & Refund posts the receipt and opens the cash refund. You credit only what you received.
You can also view a Pending Receipt authorization at Transactions > Customers > Issue Return Authorizations > List and click Receive. NetSuite creates the item receipt. Related Records lists receipts, credit memos, and cash refunds on Receipts & Refunds.
With Return Authorizations and Advanced Receiving both on, status moves through Pending Receipt and Partially Received to Pending Refund, then Refunded. Pending Refund means the items are received and the credit memo or cash refund is still open. With Advanced Receiving off, Pending Refund means the receipt and the refund are both unfinished, and a partial completion is Partially Refunded.
Applying a credit memo and refunding a cash sale
A credit memo decreases what the customer owes and can reverse an invoice charge. A memo issued after payment can be applied to an open or future invoice. Applying it deducts the credit from an open invoice or cash sale. Accounts Receivable must be enabled at Setup > Company > Setup Tasks > Enable Features. Enter the memo at Transactions > Customers > Issue Credit Memos, or generate it from the credit-form authorization.
Check Auto Apply to put the amount on the oldest invoices or cash sales, or check specific documents on the Apply subtab. With Multiple Currencies, only the memo's currency appears. Open credits can also be applied on a customer payment. Help's illustration is a $100 invoice, a $25 credit memo, and a $75 payment on one customer payment. A credit can also be applied from the open invoice.
Refunding a cash sale returns money paid by cash, check, or card at the time of the sale. At Transactions > Customers > Refund Cash Sales, choose a cash refund form and the customer. Create Check refunds by check, and Print Check queues that check. Print on the form prints the refund. Card refunds use the Billing subtab, under Payment, and you select the bank account. The cash refund debits sales income and credits checking or undeposited funds. A cash refund is not generated from a credit memo.
For an invoice, view the credit memo and click Refund. A customer refund opens for the memo amount. A refunded credit memo cannot be deleted. On Transactions > Customers > Refund Returns, select the customer, check Credit/Refund, and submit. A credit memo or a cash refund opens according to the authorization form.
Two customers, two documents
Northwind Clinic returns a stocked monitor billed on an invoice for $100. Use a linked credit-form authorization so the price copies from the invoice and the customer document is a credit memo. With Refund in Advance of Return off, the monitor stays off the refund list until receipt. If the monitor cost $40, the item receipt debits inventory asset $40 and credits cost of goods sold $40. The credit memo debits sales income $100 and credits accounts receivable $100. Apply the memo to the open invoice, or apply it to another invoice if that one is paid. Click Refund on the memo to open a customer refund. The memo from the authorization leaves inventory unchanged.
Harbor Desk returns a stocked lamp that was a cash sale for $100. Use the cash form, which generates a refund and cannot later be processed as a credit memo. Receive the lamp so the receipt posts inventory asset and cost of goods sold for the amount paid. The customer document is a cash refund from Refund Cash Sales, Refund Returns, or Save & Refund on the receipt. It debits sales income $100 and credits checking or undeposited funds. Applying a credit memo to an open cash sale reduces that balance and is separate from the refund the cash form generates.
Work both paths in the Oracle NetSuite Foundation practice questions.
Refund in Advance of Return is disabled. A return authorization contains only receivable inventory items. When can those lines be credited or refunded?
As soon as the authorization is saved, before anyone approves it.
Only after a standalone credit memo is typed in with no receipt.
They stay off the refund list until the items are received. Items that are not receivable can show in the list once the return is approved.
Only after a customer payment is recorded against the original sale.
How is a credit memo applied, and how is a cash sale refunded?
The credit memo is applied to an open invoice or cash sale and the credit is deducted from the amount due. A cash sale is refunded with a cash refund, which is not generated from a credit memo.
The credit memo prints a refund check. A cash sale is refunded by creating a vendor bill credit for the same amount.
Both transactions debit inventory asset for the selling price of the returned item.
A cash sale is refunded only by clicking Refund on a credit memo, which opens a customer refund.
A stocked item was billed on an invoice. Advanced Receiving is on and Refund in Advance of Return is off. Which sequence matches the customer return process?
Enter the cash refund, then create the return authorization, then receive the item.
Enter an inventory adjustment, record a customer deposit, and then close the invoice.
Receive the item first, then issue the authorization, then close the invoice with a journal entry.
Authorize the return, receive the item on an item receipt, then issue the credit memo for the quantity received.
Sections you finish are checked off in the contents.