Returns to Vendor

Handle vendor returns, credits, and refunds.

Return Flow Diagram

VENDOR RETURN FLOW
─────────────────────────────────────────────────────────────────

You want to return goods to vendor
         │
         ▼
┌──────────────────────┐
│ VENDOR RETURN        │  ← Authorize the return
│ AUTHORIZATION (VRA)  │
│ GL: None             │
│ Inv: None            │
└──────────┬───────────┘
           │
           ▼
┌──────────────────────┐
│ ITEM FULFILLMENT     │  ← Ship goods back to vendor
│ (from VRA)           │
│ GL: Reverses receipt │
│ Inv: Decreases       │
└──────────┬───────────┘
           │
           ▼
┌──────────────────────┐
│ VENDOR CREDIT        │  ← Reduce what you owe
│                      │
│ GL: Reverses Bill    │
│ Inv: Already shipped │
└──────────┬───────────┘
           │
    ┌──────┴──────┐
    │             │
    ▼             ▼
┌─────────┐  ┌──────────────┐
│ APPLY   │  │ VENDOR       │
│ to Open │  │ REFUND       │
│ Bill    │  │              │
└─────────┘  └──────────────┘

Stage 1: Vendor Return Authorization (VRA)

What Happens

Action	Result
Create VRA	Authorize return to vendor
Link to PO/Receipt	Track what's being returned
Specify items/qty	What will be returned
Set status	Pending Fulfillment

GL Impact

None - VRA is just an authorization, no financial impact.

Inventory Impact

None - Goods haven't been shipped yet.

Stage 2: Item Fulfillment (Return Shipment)

What Happens

Action	Result
Create from VRA	Fulfillment record for return
Ship to vendor	Goods leave your warehouse
Update tracking	Carrier info recorded
Inventory reduced	Stock leaves warehouse

Inventory Impact

INVENTORY AFTER VENDOR RETURN SHIPMENT
─────────────────────────────────────────────────────────────────

Before Return:
┌─────────────────────────────────────────┐
│ On Hand:     150                        │
└─────────────────────────────────────────┘

After Return (20 units shipped back):
┌─────────────────────────────────────────┐
│ On Hand:     130  (decreased)           │
└─────────────────────────────────────────┘

GL Impact

Account	Debit	Credit	Why?
IRNB (or A/P)	$1,000		Reduce pending liability (Liability ↓)
Inventory Asset		$1,000	Goods left your warehouse (Asset ↓)

RETURN SHIPMENT GL EXPLAINED
─────────────────────────────────────────────────────────────────

What happened: You shipped goods back to vendor

IRNB (or A/P)              $1,000  Dr
  └── Reduce what you owe for goods you're returning

Inventory                          $1,000  Cr
  └── Goods left your warehouse

Think: "Sending goods back = reducing inventory and liability"

Stage 3: Vendor Credit

A Vendor Credit is the opposite of a Vendor Bill - it reduces what you owe.

What Happens

Action	Result
Create from VRA	Vendor credit linked to VRA
Credit issued	Reduces what you owe vendor
Bill reversed	GL entries reverse original

GL Impact

Account	Debit	Credit	Why?
Accounts Payable	$1,000		You owe vendor LESS (Liability ↓)
Inventory Asset*		$1,000	Goods returned (Asset ↓)

*If not already recorded at fulfillment

VENDOR CREDIT GL EXPLAINED
─────────────────────────────────────────────────────────────────

Think: "Undo the purchase"

Original Bill:
  Inventory     $1,000  Dr    (you got goods)
  A/P                 $1,000  Cr    (you owe vendor)

Vendor Credit (REVERSES IT):
  A/P           $1,000  Dr    (you owe less)
  Inventory           $1,000  Cr    (give back the goods)

Net Effect: As if you never bought those items

Inventory Impact

If not shipped at fulfillment stage, inventory decreases here.

Stage 4: Apply Credit or Get Refund

Two options for the vendor credit:

Option A: Apply to Open Bill

If you have outstanding bills with this vendor
Credit reduces your payable balance
No cash changes hands

GL Impact: No additional entry - just applies the credit.

Option B: Vendor Refund

If no open bills or vendor sends money back
Cash returned to you

Account	Debit	Credit	Why?
Cash/Bank	$1,000		Money comes in (Asset ↑)
Accounts Payable		$1,000	Clear the credit (Liability ↑)

VENDOR REFUND GL EXPLAINED
─────────────────────────────────────────────────────────────────

After Vendor Credit:
  A/P has "negative" balance (vendor owes you!)

Vendor Refund:
  Cash            $1,000  Dr  ← Money comes into your bank
  A/P                   $1,000  Cr  ← Clear the vendor credit

Result: A/P = $0, you got your money back

Vendor Credit Scenarios

Vendor Credit can be created in multiple scenarios:

Scenario	Source	Physical Return?	When to Use
From VRA	Return Authorization	Yes	Returning goods to vendor
From Bill	Existing Bill	No	Price adjustment, billing error
Standalone	None	Optional	Vendor-initiated credit

Vendor Credit from Bill (No Return)

When vendor agrees to adjust price without returning goods:

VENDOR CREDIT FROM BILL (NO RETURN)
─────────────────────────────────────────────────────────────────

Original Bill #VB-001: $5,000
         │
         │  (Vendor agrees to $500 discount)
         │
         ▼
┌──────────────────────┐
│ VENDOR CREDIT        │  ← Created from or linked to bill
│ (No VRA needed)      │
│                      │
│ GL: Reduces A/P      │
│ Inv: No change       │  ← No goods returned!
└──────────┬───────────┘
           │
           └──▶ Apply to Bill #VB-001
                (Balance now $4,500)

GL Impact:

Account	Debit	Credit	Why?
Accounts Payable	$500		You owe vendor less (Liability ↓)
Inventory (or Expense)		$500	Cost adjustment (Asset/Expense ↓)

Standalone Vendor Credit

Created directly without linking to bill or VRA:

STANDALONE VENDOR CREDIT
─────────────────────────────────────────────────────────────────

    (No Bill, No VRA)
           │
           │  (Vendor issues credit for goodwill, etc.)
           │
           ▼
┌──────────────────────┐
│ VENDOR CREDIT        │  ← Created independently
│ (Standalone)         │
│                      │
│ GL: Creates credit   │
│ Inv: Optional*       │
└──────────┬───────────┘
           │
    ┌──────┴──────┐
    │             │
    ▼             ▼
┌─────────┐  ┌──────────────┐
│ APPLY   │  │ VENDOR       │
│ to ANY  │  │ REFUND       │
│ Bill    │  │              │
└─────────┘  └──────────────┘

* Can include inventory items if goods are being credited back

Vendor Credit Comparison

Aspect	From VRA	From Bill	Standalone
Source	VRA record	Bill record	None
Physical Return	Yes	No	Optional
Inventory Impact	Decreases	None	Optional
Common Use	Returns	Adjustments	Credits
Complexity	High	Medium	Low

Quick Reference

Return Types

Scenario	Path	Result
Return defective goods	VRA → Fulfillment → Credit	Inventory down, A/P down
Price adjustment	Vendor Credit only	A/P down, no inventory
Get refund check	Credit → Vendor Refund	Cash received
Apply to next order	Credit → Apply to Bill	Reduces balance

GL Summary

Transaction	GL Impact
Vendor Return Authorization	None
Item Fulfillment (return)	Reverses inventory
Vendor Credit	Reverses A/P
Vendor Refund	Clears A/P, increases cash

Decision Guide

WHICH VENDOR CREDIT PATH SHOULD I USE?
─────────────────────────────────────────────────────────────────

Are you returning physical goods to vendor?
│
├── YES ──▶ Use VRA Flow
│           VRA → Item Fulfillment → Vendor Credit
│           │
│           └── Inventory decreases, then Apply or Refund
│
└── NO ──▶ Is this related to a specific bill?
           │
           ├── YES ──▶ Vendor Credit from Bill
           │           │
           │           ├── Price correction
           │           ├── Billing error
           │           └── Agreed discount
           │
           └── NO ──▶ Standalone Vendor Credit
                       │
                       ├── Vendor-initiated credit
                       ├── Promotional discount
                       └── General adjustment

WHAT HAPPENS TO THE CREDIT?
─────────────────────────────────────────────────────────────────

After Vendor Credit is created:
│
├── You have open bills with this vendor?
│   │
│   ├── YES ──▶ Apply to Open Bill
│   │           (Reduces what you owe)
│   │
│   └── NO ──▶ Vendor Refund
│               (Get cash back from vendor)
│
└── Want cash back even with open bills?
                │
                └── Vendor Refund (then you still owe on other bills)

Common Issues

Issue	Cause	Solution
Can't create VRA	PO not received	Create IR first or use standalone credit
Credit not applying	Currency mismatch	Verify credit and bill currencies
Inventory not decreasing	Fulfillment not saved	Complete fulfillment from VRA
A/P not clearing	Credit not applied	Apply credit to bill or create refund

Next Steps

Standard Path - Regular PO → IR → Bill flow
Direct Paths - Skip receipt or PO

Return Flow Diagram​

Stage 1: Vendor Return Authorization (VRA)​

What Happens​

GL Impact​

Inventory Impact​

Stage 2: Item Fulfillment (Return Shipment)​

What Happens​

Inventory Impact​

GL Impact​

Stage 3: Vendor Credit​

What Happens​

GL Impact​

Inventory Impact​

Stage 4: Apply Credit or Get Refund​

Option A: Apply to Open Bill​

Option B: Vendor Refund​

Vendor Credit Scenarios​

Vendor Credit from Bill (No Return)​

Standalone Vendor Credit​

Vendor Credit Comparison​

Quick Reference​

Return Types​

GL Summary​

Decision Guide​

Common Issues​

Next Steps​

Return Flow Diagram

Stage 1: Vendor Return Authorization (VRA)

What Happens

GL Impact

Inventory Impact

Stage 2: Item Fulfillment (Return Shipment)

What Happens

Inventory Impact

GL Impact

Stage 3: Vendor Credit

What Happens

GL Impact

Inventory Impact

Stage 4: Apply Credit or Get Refund

Option A: Apply to Open Bill

Option B: Vendor Refund

Vendor Credit Scenarios

Vendor Credit from Bill (No Return)

Standalone Vendor Credit

Vendor Credit Comparison

Quick Reference

Return Types

GL Summary

Decision Guide

Common Issues

Next Steps