Contract reversals and refunds
How the reversal (rescission or cancellation) of a property sales contract is booked: revenue reversed, outstanding receivable cancelled, refund to the customer, forfeiture income and the property returned to inventory, with the entry GoSoft generates.
Not every sale ends well. A customer may withdraw, stop paying or agree to return the property. The reversal undoes the sale: the property returns to inventory and you decide how much of what was collected is refunded and how much the company keeps.
- Write the reversal entry for an installment sale.
- Compute the customer refund and the forfeiture income.
- Reverse a contract in GoSoft and review its voucher.
What the reversal undoes
| At the sale you booked… | The reversal books… |
|---|---|
| Debit receivables / credit sales revenue | Debit sales revenue for the full sale |
| — | Credit receivables for the outstanding balance (what the customer will no longer pay) |
| — | Credit customer refunds payable for what will be returned |
| — | Credit forfeiture income for what was collected and is not returned (penalty) |
| Debit cost of sales / credit inventory | Debit inventory / credit cost of sales: the property returns to stock |
Interest collected is not reversed: it relates to the time the customer used the financing.
Example
The lot 01 contract (sale 60,000,000, cost 24,000,000). The customer paid 15,000,000 of principal and withdraws. Per the contract, 10,000,000 is refunded and the company keeps 5,000,000 as a penalty.
- Outstanding receivable: 60,000,000 − 15,000,000 = 45,000,000
- Refund: 10,000,000
- Forfeiture (penalty): 15,000,000 − 10,000,000 = 5,000,000
| Account | Debit | Credit |
|---|---|---|
| Revenue from property sales | 60,000,000.00 | |
| Accounts receivable (Persona0001 Apellido0001) | 45,000,000.00 | |
| Customer refunds payable | 10,000,000.00 | |
| Other income · contract forfeitures | 5,000,000.00 | |
| Property inventory | 24,000,000.00 | |
| Cost of properties sold | 24,000,000.00 | |
| Equal totals | 84,000,000.00 | 84,000,000.00 |
When the refund is paid:
| Account | Debit | Credit |
|---|---|---|
| Customer refunds payable | 10,000,000.00 | |
| Bank | 10,000,000.00 | |
| Equal totals | 10,000,000.00 | 10,000,000.00 |
The reversal is booked on the date it happens, not the sale date. If the sale was last year, that year's revenue does not change: the reversal reduces the current year's revenue. If the date falls in an already closed month, GoSoft books it with today's date and notes it in the narration.
In GoSoft, step by step
Open the contract and choose Reverse under Options.
Enter the reversal date and the amount to refund to the customer (between zero and the principal collected).
Confirm. The contract becomes Reversed, the property is available again and GoSoft generates the reversal voucher (transfer, origin contract reversal).
gosoft.app
Contract reversal voucher as a PDF Record the refund payment when it is made, from a payment voucher or the relevant module.
Voiding a contract is for when it was entered by mistake: it had no effect and leaves no entry. Reversing undoes a real sale that existed: it keeps both the sale and the reversal, with full history.
- Deleting the contract instead of reversing it: history is lost and the lot may fall out of inventory.
- Also reversing the interest collected.
- Forgetting to record the pending refund as a liability.
A 50,000,000 sale (cost 20,000,000) is reversed. The customer paid 8,000,000 of principal and gets 6,000,000 back. What is the forfeiture income?
8,000,000 − 6,000,000 = 2,000,000.
In the same case, for how much is the customer's receivable credited?
For the outstanding balance: 50,000,000 − 8,000,000 = 42,000,000.
What happens to the property in the reversal?
It returns to inventory at cost (debit inventory, credit cost of sales) and is available for sale.
What is the difference between voiding and reversing?
Voiding is for a contract entered by mistake, with no effect or entry; reversing undoes a real sale and leaves its reversal entry.