December 30, 2008 
There is a little known, but very useful transaction type in the Payables module called Return. Every few weeks or so I see a question in the newsgroups or a call comes in from a customer where the answer is to use the Payables Return transaction.
A typical scenario where a Return is needed goes something like this: You receive a check from one of your vendors for a rebate or an overpayment. You either didn’t know it was coming or have not recorded the credit memo yet. So now you need to record the fact that you got cash, you have a lower expense and it would be nice at the same time to record this under the vendor, so that you can see a history of this together with all the other transactions for this vendor.
The Return transaction is perfect for this scenario because it will accomplish everything we want with one transaction. No need to enter a credit memo and debit memo in Payables and a separate Bank Transaction to record the receipt of money.
Below I will walk through the steps of entering a Payables Return in GP 10.0, however the steps are identical in other versions of Dynamics GP. Please click on the screen shots to see them larger/clearer.
Start by going to Transactions > Purchasing > Transaction Entry and changing the Document Type to Return. Enter the Doc Date, Vendor ID, Document Number and any of the other optional fields you’d like to use. Enter the amount you received from the vendor in both the Returns field on the left and one of 3 payment fields on the right, typically this is Check, but it could also be Cash or Credit Card if that’s how the vendor returned money to you. In my example I will enter the receipt of a check:
When you tab off the payment amount you’ll get the Payables Check Entry pop up window, make sure to chose the checkbook where this check will be deposited, in this case I will be depositing this vendor’s check to the FIRST BANK checkbook:
[Note: the check number entered above is the vendor's check number, similar to how you would enter a customer's check number on a Cash Receipt in Receivables.]
Next, click on Distributions to make sure they are what you want. The cash account linked to your Checkbook ID will default here with a debit for the CASH distribution type and the Return amount will show as a credit for the PURCH distribution type. (There is no RETURN distribution type in payables.) The PURCH account(s) will default from the Purchases account(s) set up for this vendor, but you can change them as needed, just like on a payables invoice. It is important not the change the Cash account, as that will cause an issue with your bank reconciliation.
Notice there is no distribution for Accounts Payable. This is because we’re not actually entering any change to what we owe this vendor or what the vendor owes us, so the Return transaction will record everything we need and keep history for this under the vendor without actually changing their AP balance.
Once you post this Return transaction Payables inquiry windows will show a transaction with a type of RET – this transaction will be moved to history automatically as soon as it posts, since it’s fully applied right away:
And you will have a new Receipt waiting to be deposited in the Bank Reconciliation module:
This can now be deposited together with any other cash receipts, payables returns or bank receipts.
As easy and straightforward as the Return transaction is, there are a few times when it may not be the right answer. I am sure there are others, but the typical times when not to use a Payables Return are:
- When you have already entered a credit memo for the vendor.
- When you need to enter the return of inventory items.
- When the money you are receiving is not from a vendor.
That makes perfect sense, thank you !
And your solution of using a ‘dummy’ credit card linked to vendor works like a charm !
Thanks!
-David
Thanks Victoria.
Let me back up here a little and use an example.
Advance to employee/vendor:
like a prepayment, we use Manual payment. Let’s say we make a prepayment of $10,000. Posts through to GL as a debit to A/P and credit to Cash with a value of $10,000.
Expense report submitted by employee $7,456:
Posts as a payable invoice from employee with a debit to Expense and credit to A/P with a value of $7,456.
As of this stage, there is a net debit of $2,544 in employee and A/P account which
David,
Great, working with examples is better. Here is how you can handle this:
-Victoria
Thanks Victoria,
For the first part of your reply, did you mean a ‘Credit Note’ in Purchasing–>>Transactions–>>Transaction Entry drop down (as opposed to a debit note)? I could not see a Debit note in PM, unless there is something I am missing. Thanks !
Sorry David,
I was a little tired when writing this yesterday and forgot there is no Debit Memo in Payables. I meant Misc. Charge. Since in this scenario you have an unapplied payment or a ‘credit’ on the vendor account, you need a ‘debit’ to apply it to. That can be either a Misc. Charge or an Invoice in Payables, but I prefer Misc. Charge since it shows that something other than normal invoicing happened.
-Victoria
Hi Victoria,
avid
We have a slightly different situation & wanted to see if you could suggest something. We have employees setup as Vendors so that their expense reports can be posted to vendor accounts (we use Business portal for EE reports). That part is working fine, and so is the payment to reimburse EEs also. Where we get stuck are two situations:
a) On some occassions, the employee needs an advance to travel, so we use a manual payment and debit the vendor/employee account. if the expense submitted is greater than the advance, we pay the balance to the employee and record as manual payment. However, there are cases where there is a balance remaining and employee settles that by issuing a check to the company. Is there a way we can record that receipt in payable module so that a complete vendor account exists?
b) For international travel, we also issue foreign exchange to the employee in advance. In most cases, the FX is purchased from a vendor and we get an invoice for that. That invioce gets recorded as a payable in PM against the vendor. How can we debit that advance to the employee/vendor account?
Sorry for the longish email !
-Thanks in advance
Hi David,
a) If you have already entered the advance as an invoice (instead of just a payment sitting there waiting to be applied), then you could enter a Return Transaction. The cash received can be entered on that same return transaction. If the prepayment was only entered as a payment and a portion of it is sitting there unapplied, then you would need to enter a debit memo for the difference, then enter a Bank Rec receipt to record the cash coming back from the employee.
b) One way to record the FX stuff is with a ‘dummy’ credit card. Set up the vendor you’re actually paying as a credit card, enter the invoice under the EE vendor account and pay it with the FX vendor credit card. This will automatically ‘pay off’ the EE vendor invoice and will create an invoice under the FX vendor for you to pay. Here is some more information on using credit cards in GP: http://victoriayudin.com/2009/01/04/using-credit-cards-to-pay-vendors-in-dynamics-gp/.
-Victoria
Exactly what I was looking for! The part I wasn’t doing was tab-ing over to the check side to enter the amount of the refund check.
Thank you, Victoria
I have a similar issue as described in your example If I follow your instructions, it works perfectly if it only affects payables. My problem is getting this to work in project accounting. Someone had a brief comment about PA and you responded that if it is affects projects you do a project transaction and if not use the payables transaction. I would like the same results that you achieved in your example but also reduce the project by this amount. Can this be done?
Becky,
It has been a long time since I have worked with Project Accounting, so I cannot answer this for you. I would recommend posting your question on one of the GP forums or asking GP Support about this.
-Victoria
Nice Article! But what if we are using Project Accounting. Are we stuck with Project -> Returns From Project Entry. ONly-? Since we are dealing with Cost Categories-?
Thank you
H
Harry,
Yes, if you need to record something for a project, you should use the Project Accounting transactions. If you have a return for a non-project event, then you could use the Payables Return transaction.
-Victoria
Victoria, why does the Apply button become active when you select Return as the document type if we never need to apply it to anything?
Thanks,
JDM
JDM,
Let’s go back a step. I said there is nothing to apply in response to your question about the numbering of the payment receipt. You can use a Return payables transaction just like a Credit Memo. Then you would not be entering a payment received and what you’re applying is the Return transaction itself, not the payment for it. In my experience, most companies will enter a Credit Memo in this situation, not a Return. To me, the reason for and the benefit of using a Return Payables transaction is to record the payment received from the vendor at the same time. In THAT case, the payment will automatically be ‘applied’ and there is nothing left to apply. Hope that helps to clarify.
-Victoria
Victoria, I noticed a payment number in the Payables Check Entry window. This number represents a “receipt” of payment, that is cash in as opposed to making a payment or cash out. But there is no prefix on the number. Is there a way to identify a payment number in Payables to distinguish it as either “cash-in” vs. “cash-out” ? Otherwise just looking a payment number you wouldn’t know if it was cash in or cash out.
JDM
Jimmy,
There is only one numbering scheme available for payments in the Payables module. However, I do not think this is an issue. This ‘cash in’ will not actually create a separate payables transaction, and you will not be able to see it as separate from the Return transaction. You will also not ever need to apply it to anything since it’s fully applied right away. So I don’t think you’re really not going to be looking at this on any list where you need to identify that this is a ‘cash-in’ situation. In fact, looking at posted Return transactions in our system, I cannot see that payment number anywhere.
-Victoria
Hi Victoria
Thanks for your reply.
I made a manual payment to my vendor as advance and he didn’t supply the complete material. So he gave me a check for the balance amount. Now I want to decrease his balance and increase my bank. This is my concern.
Thanks again
Abdul Rahman
Abdul,
If all you have entered so far is a payment to the vendor, you would need to enter 3 transactions now (this is assuming you are using the Bank Rec module):
1. Payables (or POP) invoice for the actual amount of goods received.
2. Payables invoice or misc charge for the difference (which should be the amount of the check the vendor gave you). For the GL distributions on this debit a Suspense account and credit Accounts Payable.
3. Bank Transaction with a type of Enter Receipt for the amount of the check the vendor gave you. The GL distributions here will debit Cash and credit the Suspense account you used in step 2 above.
-Victoria
Hi
I would like to know how I can handle when the money returned reduces the vendor balance. For example I paid advance but later I cancelled the order and the vendor returned the money.
Thank you
Abdul Rahman
Abdul,
When you say that you “paid advance”, what are all the transactions that you have recorded in GP for this?
-Victoria
Victoria,
Sorry, Actually the unapplied amount is shown against payment which was made in excess to Vendor not return transaction.
- Abu Owais
Abu,
If a payment has an unapplied amount, you have 2 choices:
1. Apply it to an existing Invoice, Finance Charge or Misc Charge transaction by going to Transactions > Purchasing > Apply Payables Documents.
2. If there is nothing to apply it to, you can create a new transaction (I would recommend using Misc Charge in this case) for the unapplied amount, post it, then apply the amount remaining on the payment to it.
-Victoria
This article helped me but the vendor history is showing a return document which has an unapplied amount.
Is there any way I can get rid of that return transaction.
Thanks
Abu Owais
Abu,
Are you able to apply the return to an invoice?
-Victoria
Thanks for publishing such articles very useful and nice to know.
Farooque.
Simple yet elaborate and complete.
I had been wondering on how easy I could learn the functionalities, but now I have a means to achieve that.
Thanks
Vaidy