A refund reduces what you spent, it isn't income
Return $200 of groceries and the honest result is simple: you spent $200 less on groceries. Count that refund as income instead and your books now show $200 of earnings and $200 of spending that cancel to nothing real, with your savings rate wrong in both directions.
A refund undoes a purchase
Money coming into your account is not automatically income. Income is money you earned. A refund is money you already spent, coming back because the purchase didn't stick. The right place for it is against the spending it reverses, not alongside your paycheck.
Return the $200 of groceries and your grocery spending for the month should read $200 lower. That is the whole event. Nothing was earned, and your income for the month is exactly what it was before the return.
The double-count, and what it costs
An app that files every deposit as income books the refund as $200 of income while the original $200 of spending still sits there. On paper the two cancel, so your net worth lands in the right place. Everything built on the split, though, is now wrong.
Your income is overstated by $200 you never earned. Your spending is overstated by $200 you got back. And your savings rate, which is earnings minus spending, is distorted at both ends. A number that should have quietly improved is now built on two figures that are each too big.
How it's recorded properly
A refund posts back against the category it came from. The $200 lands on groceries as a reduction, your grocery total drops, and your income is left alone. One line, one effect, and every number downstream stays honest.
Marked Money has a Refund entry for this. It puts the money back where it came from rather than treating it as something new you earned, so the return of a purchase looks like the return of a purchase.
Refund or income? A quick test
Ask what the money is giving back. A store refund gives back a purchase, so it reduces spending. A rebate or cashback on something you bought is the same shape: it lowers what that thing cost you.
Reimbursements are the interesting middle. If your employer pays you back for something you bought for work, it reduces that expense in your books, the same as any refund. It only looks like income because it arrives the same way a paycheck does.
Genuine income is money for something you did or provided: wages, interest, a dividend, a payment for work. If nothing was given back, and you are simply better off than before, that is income.
Marked Money splits a loan payment for you and keeps the three parts straight afterwards, so paying down a debt stops looking like spending it.
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