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Large Supplier Overpayment

We received notice that our local electric company had been over charging us for years so we have been issued a 20K credit to our account.

I am a little puzzled about the best way to handle this transaction:
- I am inclined to book the entire credit to the expense account in the current period, despite the fact that the over payment includes reimbursement for prior fiscal years.
- My thinking is that this will then greatly reduce our YTD expense in this GL, but would be balancing out the overstatement of that account in prior years?

Does this seem correct, or is there a better approach?

My other thought is to park the "credit" in prepaid and then chip away at it as we receive new invoices from the electric co monthly.

Thanks!

Answers

Sharon Binau
Title: Bookkeeper
Company: MHR
(Bookkeeper, MHR) |

My question would be "Why did they give you a credit, and not refund your money"? I think I would be inclined to ask for the refund. If they refuse, I'm not sure I would want to keep making adjustments as invoices come in, I would post the entire amount to the expense account as you said. You may end up with a negative balance, but that seems more of a proper way to handle it.

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