How should a refund from a previous purchase be recorded in bookkeeping?

When a refund is processed for a previous purchase, it typically involves returning money related to an expense that was incurred. The correct recording of such an event in bookkeeping reflects this transaction accurately.

In this context, debiting assets indicates an increase in cash or accounts receivable, acknowledging that the company is receiving money back that had previously been spent. This aligns with the fundamental principle of accounting, which states that debiting an asset account increases its balance.

Simultaneously, crediting expenses accounts for the reduction of previously recognized expenses. Essentially, this entry reverses part of the expense that was originally recorded when the purchase was made, reflecting that the outflow of funds is being negated by the refund.

This approach ensures that the financial statements accurately reflect the company's current financial position after the transaction—acknowledging that cash has increased and that expenses have effectively decreased due to the refund.