Which General Ledger Account do I use for a Customer Refund?

Angifischer98
New Contributor

We are a garage door company.  We currently have revenue(sales) listed as the following in Quickbooks:

1. Job Income:Residential:Door 2. Job Income: Residential: Operator  3. Job Income:Residential: Parts, etc.

I have created matching GL acct in ST.  

We require a deposit before ordering the door.  What happens if a customer cancels their order but we've already deposited their down payment?  Do I create a refund item in the Pricebook for each of the categories above?  for example: Refund - Job Income:Residential;Door, Refund - job income operator etc. to make sure that they remove the sales number?  does the fact that it is just a deposit and no work was performed change matters?

Thank you

 

 

2 ACCEPTED SOLUTIONS

AdamCronenberg
Contributor III

Hi Angi,

Great question and this is really going to be dependent on what level of financial reporting you want to see in QuickBooks.  If you want to track the amount of discounts you are giving, I recommend having a Separate GL Account for refunds.  You can decide if you want to have 3 refund items to match your sales income items or just a general refund GL account.

As for your question on deposits, this is also going to be a workflow question.  We give the customer 3 days per the FTC's cooling off period to cancel their order with no questions asked.  After 3 days, we keep the deposit as often times we are unable to cancel the door with our manufacturers and are stuck with it.  In this instance, we have a task in our pricebook called Deposit Forfeited and add that to a job to and apply the deposit payment to recognize the revenue from that deposit.  Oftentimes there is still a PO on the job as we dont stock doors and unfortunately are then sometimes stuck with these doors that we cant resell.  We hold them for 90 days and then toss them unless they are a 16x7 (which hopefully we can sell before 90 days.  This is why we take a deposit and keep it.  Sometimes for PR reasons, we do decide to refund a customer past the 3 days if we think it is going to cause disatrous customer service issues, but we end up eating real costs on these jobs that customers cancel.  We are also very upfront during the sales process with what the customer can expect from us and our cancellation policy.  We have a form that is required on every door and special order parts sale.

Lastly, we are launching a Service Titan specific Garage Door Group in the next week and I encourage you to check it out and join as it will be targeted just to Garage Door Companies to help with our specific needs with Service Titan.  I hope this helps and let me know if you have any questions.  

Garage Door Freedom/A1 Garage Door Service

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michael21
Contributor III

Hi @Angifischer98.  First and foremost, when you take a deposit, you should not be treating that as an income or revenue item, it isn't unless, as in @AdamCronenberg 's example, the deposit is forfeited.  When you take a deposit, it is a liability.  It does not become revenue until you complete the tasks to "earn" the revenue, (ASC 606).  Service Titan has recognized this fact and implemented a very good workflow for handling deposits, recognizing when they become revenue, and refunding them if necessary.  I recommend that you look at the Knowledge Base article, "Managing Customer Deposits without Payment Collections: recommended workflow" if you are not using Payment Collections yet, or "Manage Customer Deposits: recommended workflow" if you are, to get a good understanding of the new process.

Mike M CPA & Operations in KC, (go Chiefs)

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4 REPLIES 4

e_dunn
Community Manager
Community Manager

Hi @Angifischer98  - Welcome to the ServiceTitan Community and congrats on your first post!

@AdamCronenberg - you're one of our amazing Garage Door experts - would you want to offer your recommendations? OH, and maybe mention a group that's launching soon that @Angifischer98 might be interested in 😉

AdamCronenberg
Contributor III

Hi Angi,

Great question and this is really going to be dependent on what level of financial reporting you want to see in QuickBooks.  If you want to track the amount of discounts you are giving, I recommend having a Separate GL Account for refunds.  You can decide if you want to have 3 refund items to match your sales income items or just a general refund GL account.

As for your question on deposits, this is also going to be a workflow question.  We give the customer 3 days per the FTC's cooling off period to cancel their order with no questions asked.  After 3 days, we keep the deposit as often times we are unable to cancel the door with our manufacturers and are stuck with it.  In this instance, we have a task in our pricebook called Deposit Forfeited and add that to a job to and apply the deposit payment to recognize the revenue from that deposit.  Oftentimes there is still a PO on the job as we dont stock doors and unfortunately are then sometimes stuck with these doors that we cant resell.  We hold them for 90 days and then toss them unless they are a 16x7 (which hopefully we can sell before 90 days.  This is why we take a deposit and keep it.  Sometimes for PR reasons, we do decide to refund a customer past the 3 days if we think it is going to cause disatrous customer service issues, but we end up eating real costs on these jobs that customers cancel.  We are also very upfront during the sales process with what the customer can expect from us and our cancellation policy.  We have a form that is required on every door and special order parts sale.

Lastly, we are launching a Service Titan specific Garage Door Group in the next week and I encourage you to check it out and join as it will be targeted just to Garage Door Companies to help with our specific needs with Service Titan.  I hope this helps and let me know if you have any questions.  

Garage Door Freedom/A1 Garage Door Service

this is great - especially about only giving them 3 days.  I think I joined the group, but please tell me the name again.

michael21
Contributor III

Hi @Angifischer98.  First and foremost, when you take a deposit, you should not be treating that as an income or revenue item, it isn't unless, as in @AdamCronenberg 's example, the deposit is forfeited.  When you take a deposit, it is a liability.  It does not become revenue until you complete the tasks to "earn" the revenue, (ASC 606).  Service Titan has recognized this fact and implemented a very good workflow for handling deposits, recognizing when they become revenue, and refunding them if necessary.  I recommend that you look at the Knowledge Base article, "Managing Customer Deposits without Payment Collections: recommended workflow" if you are not using Payment Collections yet, or "Manage Customer Deposits: recommended workflow" if you are, to get a good understanding of the new process.

Mike M CPA & Operations in KC, (go Chiefs)