What Accounts Are Affected When Company Sends Cheque To Customer?

When the company / corporation received the payment more than the payment written on unpaid invoices from customer / client, then the company needs to refund this amount to its customer. It creates a Current Liability i.e., refund payable account as the company is liable to pay to customers any amount in excess of unpaid dues. Suppose, the refunded amount is $150. When the company sends cheque / check to customer, the following journal entry is recorded in the Books of Accounts as shown below:

                           Refund Payable a/c $150

                                                          Cash a/c $150

                                      (Send A Cheque To Customer As A Refund And Write Off Refund Payable A/C)

As the company refunded the payment to customer, so refund payable account is decreased by $150 and, now it is Write Off, so we debit it while cash account is also decreasing as the payment is made and as a result cash is going out of the business. So, we credit cash account with the amount of $150. So, here two accounts are affected. One is a refund payable account and other one is a cash account. Cash is recorded on assets side / left side of the Balance Sheet as a current asset under the heading of current assets while refund payable account is recorded on liabilities & equity side / right side of balance sheet under current liabilities section.

The effect of this Transaction on Accounting Equation is that liabilities are decreased while assets are also decreased by $150, as shown below:

Assets    =    Liabilities             +  Equity

                                                                    - Cash   = -Refund Payable

                                                                     -$150   =  -$150

The assets side or the left side of the accounting equation is decreased by $150. The liabilities & equity side or the right side is decreased by $150. The equation is in balance after recording this transaction. The assets side shows an decrease of $150 while liabilities & equity side shows a decrease of $150 and the monetary values on both sides are equal.