Handling a cash refund on a credit card charge.

Hi everyone,

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?

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  • How do you handle cash normally? Do you have a cash category or a cash account?

    Like 1
      • Primaniac
      • furious_falcon
      • 1 yr ago
      • Reported - view

      monkeyhanger I don't use cash for the most part. If I ever have to, it is just the required amount coming out a certain category as a cash withdrawal. That's it. 

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      • monkeyhanger
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      • monkeyhanger.1
      • 1 yr ago
      • 2
      • Reported - view

      LoaferDude I don't use cash often - 3 transactions in 2020. That makes a cash or wallet account super easy to keep on top of. As dakinemaui has shown you can work it your way but it's more complicated.

      Like 2
  • I would record a $29 inflow in my Wallet/cash account categorized as Clothing.

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      • Primaniac
      • furious_falcon
      • 1 yr ago
      • Reported - view

      dakinemaui I would do the same thing, except I am racking my brains how to do that without a cash account. Since I do not use cash frequently.

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    • LoaferDude Since you don't use cash much, it would not be onorous to record the limited number of cash transactions in a cash account. 😉

      I'll outline the cash category approach for you in a bit. In general it's not intuitive because receiving ANY cash manifests as spending. 😳

      Like 1
  • LoaferDude said:
    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.

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      • Primaniac
      • furious_falcon
      • 1 yr ago
      • Reported - view

      dakinemaui Sure, that answers half the question. I do understand allocating it back to the same category, but since I have cash now, how do I make the budget reflect this without adding a new cash account only for this transaction? I believe I have done fairly well for the greater part of a year or so without a cash account, so don't want to start one up when I know I am not going to use it. 

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  • LoaferDude said:
    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.

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    • dakinemaui said:
      If you don't wish to pay off that debt, you'll need to move funds into the CC Payment category

      Correction... Should have been, "If you wish to pay off that debt..."

      Like 1
      • Primaniac
      • furious_falcon
      • 1 yr ago
      • 1
      • Reported - view

      dakinemaui Got it. This seems like a clear-cut approach. Of course, creating a cash account, now that I see how it would make some things easier, does make a lot of sense. Thank you folks for all the help. :) As people keep telling me, I need to stop making stuff more complicated than it needs to be. :) 

      Like 1
      • Primaniac
      • furious_falcon
      • 1 yr ago
      • Reported - view

      dakinemaui I actually would like to ask for some further clarification. I just did what you suggested. And now, there is an inflow into my Clothing category for 29 USD (which is your Step #1). My budget now shows 29 USD available in Clothing (previously it was 0 USD). I reallocated this to Dining Out (which is where I expect I will spend this cash). I then moved 29 USD from my checking account into my CC account to make up for the deficit that moved out. At this point, my categories AND cash flow should be squared away, if I am not mistaken. Please confirm. :)

      Now, how do I account for the 29 USD cash I have and bring it back on to my budget with a Cash Account? Your reply says I just spend the 29 USD in whatever category I assigned it to (Dining Out) and I cannot track it, since it is in cash at this point. If I create a cash account, and give it a starting balance of 29 USD, it will put that amount into TBB and ask me to give it a job. But I have already done that in the previous stage when I moved it from Clothing. How do I address this? 

      Also, thanks a ton for the help. :) Everyone. You guys are awesome. 

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    • LoaferDude I did not specify 2 steps. I described a single transaction with 2 split lines. That was also what to do if you continued WITHOUT a cash account. 🙂 You can ignore that  since you decided to add a cash account, (At least I think that is the case!)

      Instead, you would merely enter a normal (non-split) transaction mentioned in my very first post (inflow categorized to Clothing) entered into a new cash account. (Created with a $0 starting balance.)  This is how money comes back into the budget (as the cash account is a budget account).

      The cash in that account is merely a method of payment. Just as writing a check is just another way to pay.

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      • Primaniac
      • furious_falcon
      • 1 yr ago
      • 1
      • Reported - view

      dakinemaui Damn! That was extremely stupid of me. I was clearly overthinking things here. Now I feel very silly. :) Thank you for clearing that up. 

      Like 1
    • LoaferDude Lots of moving parts and new processes, not to worry! Sounds like you have a handle on things now. 

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      • Primaniac
      • furious_falcon
      • 1 yr ago
      • Reported - view

      dakinemaui Ah yes. A better handle on things. I am just experimenting with both the methods you suggested to understand the difference and how they work.

      Some of these mechanics of these transactions are confusing me. For example, the single transaction split that you mentioned, it makes the transaction a net zero, because inflow = outflow for that transaction. If I understand you correctly, you are asking me to split a single transaction with an inflow = 29 USD for clothing and a 29 USD outflow to let us say Dining Out. For the sake of this example, let us say that I still have 25 USD in my Dining Out category for this month. Currently, what happens is that the transaction is a net zero, but is says I have overspent my Dining Out category by 4 USD, which kind of makes sense to me because the outflow of 29 USD in the second half of the split is greater than what I have in my Dining Out budget. How is this to be addressed? I am assuming this is what you were talking about without the Cash Account being set up. Please let me know if I have misunderstood what you have said. :)

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    • LoaferDude Yes, that all sounds correct. You would shift $4 in the budget from a green category to Dining Out to cover that overspending.

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      • Primaniac
      • furious_falcon
      • 1 yr ago
      • Reported - view

      dakinemaui Oh damn, I was thinking of this the wrong way. I thought since I was moving 29 USD into Dining Out, now I should eventually have 25 USD (from what was remaining) plus the 29 USD that I just moved into it. I forgot that this was a convoluted cash transaction and the 25 USD I had in Dining Out was now the cash I have in hand. By golly, I finally got a hang of it. Thanks a ton for your patience and help. :)

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    • LoaferDude yep, that sounds right as well. Subsequent cash spending is off the books. Or more correctly, Dining Out already took the hit in the budget.

      Like 1
  • 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.

    Like 1
      • Primaniac
      • furious_falcon
      • 1 yr ago
      • 1
      • Reported - view

      dakinemaui Ah yes. Put like that, it makes a lot of sense. It is not just moving money between categories and the cash flow, it is also how you think about your money here. That is what I was missing. Thank you for clearing that up so nicely. :) 

      Like 1
      • Primaniac
      • furious_falcon
      • 1 yr ago
      • 1
      • Reported - view

      dakinemaui And yes, up until now I did not need a cash account because I used to withdraw money only when I needed it and used it immediately for whatever category I wanted to use it for. Never thought that was the reason the method was working well for me, till you explained it. :)

      Like 1
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  • 1 yr agoLast active
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