When a Sale Is Not a Sale
Sometimes a sale does not stay a sale. This can happen when a customer returns whatever he bought, or a trade customer asks for a special allowance on wrong or substandard merchandise.
At some point, you have probably returned something to a store (or at least tried to). It either turned you down flat, allowed an exchange, or actually gave you your money back. As soon as that money was back in your hands (or credited to your credit card), that original sale was no longer a sale; it transformed into a sales return. The same holds for your company's sales: when a customer brings (or sends) something back and you give her a refund, that counts as a sales return transaction. Sales returns are measured in their own account, separate from your general sales account.
For your company's protection, put some standard procedures into place to prevent fraudulent returns. For example, require an original receipt in order to process a refund, or set a time limit (maybe three or six months), after which no refunds will be allowed.
For cash customers, you return “cash” in whatever form the customer paid you: cash or a store credit for an actual cash; a credit card credit for a credit card payment. A refund for a check depends on the timing. If the check has cleared (usually measured in a certain number of days from receipt), the customer can get cash or a store credit on the spot; otherwise, your company policy may require the customer to make an exchange rather than get a refund. For credit customers (not credit card customers), you can simply deduct the amount from their account balance, based on a common document called a credit memo (short for memorandum).