Refund definition

What is a Refund?

A refund is a repayment of funds from the original payee to the original payer. It can be caused by returned goods, an overbilling, or an excess tax payment. These scenarios are noted below.

Returned Goods Refund

Refunds most commonly occur in standard sales transactions, when a customer returns goods to the seller and receives a refund at that time. The refund may be in the form of cash or a credit that can be used for the purchase of other goods from the seller.

Overbilling Refund

A refund may be paid when the seller originally invoiced an excessive amount to the buyer. In this case, the amount of the overage is paid back, and the customer retains possession of the goods that were originally acquired.

Tax Refund

Another situation involving a refund is when a taxing authority pay funds back to a taxed entity when it finds that the taxed entity overpaid its taxes. An alternative is for the taxed entity to carry the excess payment forward to its next tax return, rather than accepting a refund.