8

My bank in the US sent me a check accompanied by this letter:

We're providing the attached check due to a refund on your account. This amount may appear as a debit on your billing statement.

Why would a bank refund appear as a debit on my billing statement?

3
  • Did you issue the check yourself to somebody or did you deposit the check made by someone else? Aug 25 at 12:07
  • 3
    "debit" is an accounting term. It's confusing. Pretend that "as a debit" isn't there. When you get your billing statement, just check that it got handled properly. Aug 25 at 12:43
  • @usr-local-ΕΨΗΕΛΩΝ deposit the check made by someone else (my bank) Aug 25 at 15:02
20

I'm assuming this is a credit card/credit line/loan account because that's the context in which it makes sense.

You pay your statement balance, then your account is credited due to a refund. This credit leaves your account with a negative balance, they write you a check for the negative balance amount and debit your account the amount of the check to bring your balance back up to zero.

1
  • 4
    +1, noting that the conventions of your post are that "negative balance" means that the bank owes money to its customer, the OP. That's fine and common with a credit account, but anyone used to the opposite convention used with deposit accounts—in which a positive balance means the bank is holding money that the customer can request or spend—would see the refund as increasing the balance above zero, such that it is positive. Since the bank doesn't want to hold money in a credit card account, it then debits against the positive balance, reducing it to zero and offering a check. Aug 25 at 19:28
9

When talking about a checking account, a deposit is a credit and a withdrawal is a debit. That leads many to think a credit to mean "add to the account" and a debit to mean "take something from the account".

In accounting terms, a debit is something that increases assets or decreases liabilities, and a credit is something that does the opposite: it decreases assets or increases liabilities.

In your checking account, a deposit increases the bank's liability: it's money they must supply you if you ask for it. Likewise, a withdrawal decreases the bank's liability: it's less money that they now owe you. That is, your money is not an asset of the bank, but a liability.

On a credit card statement, every charge is actually a credit (for the bank): it increases your liability to the bank. Every refund and payment is a debit (for the bank): it decreases your liability to the bank.

6
  • The last part is wrong, credit card statements show payments and refunds as credits. If you have a bank that shows charges as credits and payments as debits I'd love to know who they are, but every bank I've encountered and numerous web sources seem to agree. consumerfinance.gov/ask-cfpb/…
    – Hart CO
    Aug 25 at 5:22
  • 3
    @HartCO: chepner's last paragraph is right but a bit confusing, because it's in the context of personal accounting. If you kept your own ledger, then indeed making a purchase on a credit card is a credit, and paying off the credit card is a debit. But for the vast majority of the time, we talk about debit/credit from the bank's point of view.
    – Nayuki
    Aug 25 at 5:53
  • Here the refund is from the account to the user, not a refund to that account, so this is incorrect. A charge is a debit, a payment by the cardholder to the account is a credit, a refund (of a charge) is a credit, a payment back to the user by check (what OP is talking about) is a debit.
    – jcaron
    Aug 25 at 11:23
  • I posted this as an answer mostly because I though it deserved up/down voting, rather than being a comment. I was definitely unsure about how to word it correctly.
    – chepner
    Aug 25 at 11:40
  • 2
    I've adjusted the last paragraph slightly. In the end, I think the main difference is just the perspective. The same transaction can be a debit on one person's balance sheet but a credit on the the other's.
    – chepner
    Aug 25 at 15:43
6
  • Initial balance: $0
  • You pay something with your card for $100 -> Debit of $100, balance $100 in their favour (shows as $100 on CC balance)
  • You pay the credit card bill -> Credit of $100, balance is $0
  • Merchant refunds the $100 for whatever reason -> Credit of $100, balance is $100 in your favour (shows as -$100 on CC balance). They don't like that.
  • Bank refunds this balance in your favour by issuing a check -> Debit of $100, balance is $0

As a table:

Operation   | Debit | Credit | Balance in their favour
------------+-------+--------+-------------------------
Initial     |       |        |                      $0
Charge $100 |  $100 |        |                    $100
Pay CC bill |       |   $100 |                      $0
Refund $100 |       |   $100 |                   -$100
Check sent  |  $100 |        |                       0

So there are two refunds: a refund to the account, which is a credit, and then a refund of the negative balance to you, with is a debit of the account.

CC bills usually show the balance in their favour rather than yours like a regular checking account, so positive means you owe them money and negative means they owe you money, but the debits and credits remain the same. A debit increases your debt, a credit decreases it.

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