This issue commonly arises when a supplier issues a statement/invoice that contains a credit relating to a previously paid cost recovery - e.g. HMLR refunds.
Scenario:
- The cost recovery is paid
- The cost recovery transaction was reconciled in the bank reconciliation in Xero in a previous month
- The cost recovery was invoiced in a previous month
- The invoice was paid in a previous month
Issue:
It is not possible to post the credit refund as a negative cost recovery. As the invoice was posted and paid in a prior financial month/year it is not the correct accounting procedure to remove the invoice payment and edit the invoice. Therefore, the credit refund will need to posted to a GL account
Solution:
| Action | Where |
Mark all cost recoveries on each matter as paid (as per the statement) | Smokeball |
The refunded cost recovery will need to be posted as a credit to an income or expense account in Xero. (This enables the statement to agree with the Xero bank rec balance). This will be a debit to the office bank | Xero |
Post a Payment (Dr journal entry) from a firm GL expense Account (previously credited) this will update office bank and balance out the credit in the previous step. & transfer money from physical office account to client account. Transfer money from the physical office account to client account. | Xero and Bank account |
Post a Deposit funds entry to the Smokeball matter | Smokeball |
Post a Payment to client entry from the Smokeball matter from client account | Smokeball |
Scenario:
- The cost recovery is paid
- The cost recovery transaction was reconciled in the bank reconciliation in Xero in a previous month
- The cost recovery was invoiced in a previous month
- The invoice is unpaid
Issue:
It is not possible to post the credit refund as a negative cost recovery. As the invoice was posted and paid in a prior financial month/year it is not the correct accounting procedure to remove the invoice payment and edit the invoice. Therefore, the credit refund will need to posted to a GL account
Solution:
| Action | Where |
Mark all cost recoveries on each matter as paid (as per the statement) | Smokeball |
The refunded cost recovery will need to be posted as a credit to an income or expense account in Xero. (This enables the statement to agree with the Xero bank rec balance). This will be a debit to the office bank | Xero |
Post a Payment (Dr journal entry) from a firm GL expense Account (previously credited) this will update office bank and balance out the credit in the previous step. & transfer money from physical office account to client account. Transfer money from the physical office account to client account. | Xero and Bank account |
Post a Deposit funds entry to the Smokeball matter | Smokeball |
Post a Payment to client entry from the Smokeball matter from client account | Smokeball |