Handling a cash refund on a credit card charge.
I did try looking for some answers, but did not find any suitable ones. So here goes. I have some clothing purchases from REI on my credit card, which I had to return. REI said they could not put it back on my card because I had used PayPal and refunded me the amount in cash.
Normally, a refund would be allocated to TBB under the same account and category to keep things consistent. I am a little confused on how to handle this situation. I cannot allocate it to TBB, since the credit card transaction is not going to change. I was charged 135 USD and refunded 29 USD. So the 135 USD stays as is, but I now have 29 USD in cash. Unless I use that cash to pay my CC bill, the normal solution will not hold.
How have you folks handled this?
Normally, a refund would be allocated to TBB
Returns should always be categorized back to the same category as the outflow so averages and totals are correct. It's also less work since the budget updates itself.
If I ever have to, it is just the required amount coming out a certain category as a cash withdrawal.
By definition, all cash purchases are off the books. The entire REI/Paypal purchase/return flow is merely a convoluted ATM withdrawal from your CC. Bottom line is you have cash and your CC is $29 more in debt than otherwise. If you don't wish to pay off that debt, you'll need to move funds into the CC Payment category to compensate. This effectively shifts the ATM withdrawal from the CC to your checking account.
Currently that money was/is pegged as Clothing. If you would like your Clothing category to be more accurate, make a net $0 transaction to shift the cash "withdrawal" to somewhere else:
Split 1: Inflow $29 categorized as Clothing
Split 2: Outflow $29 categorized wherever is more appropriate (based on where you'll spend that cash)
You could choose to stop the train at this point. Because that money is outside of the budget, you cannot make budgeted purchases with it. Nor can you pay your CC bill with it (since it's real cash). To progress beyond this situation, it has to be brought back on budget -- either in a new cash account or deposited into your checking account. Categorize the inflow back to Clothing (assuming you didn't move it as described above).
The simplest approach (not involving a new cash account) is to deposit the cash in either checking or savings.
The point of a cash account is to defer the choice of category until you actually know what the money was actually used for. I don't use cash much either, and it is often many months after I get cash until I know what I actually spent it on -- and therefore the correct category.
EDIT: It's no different than receiving your paycheck -- you don't know exactly on what or when you'll spend that money either. So it hangs out in an account until you're sure (i.e., money leaves your control).
What you've been doing by categorizing the withdrawals works fine if you actually spend it right away on what you intended to spend it on. The net $0 split is merely recording the fact you changed your mind. Depositing it in checking or savings is another way to reflect that you changed your mind.