Question...we are a wholesaler selling to retail and often get products returned to us. We typically issue a return authorization and then issue a credit memo when the merchandise comes back to us.

Some of our larger customers do not wait for credit memos and offset payments to us with Provisional Credits. Once they receive our credit memo they then will issues us a Provisional Credit Refund and then apply the Credit Memo.

This causes us to record the three transactions: Credit Memo, Provisional Credit, and Provisional Credit Refund.

How do I set up the two Provisional accounts so that I do not record Income or Expenses that are not "real"?

I agree with momma, the only entries that should go through your books should be from your own credit memo. If someone else issues a provisional credit that does not quite match yours it will be an unmatched item on your receivables and either they will fix it on their next payment or an adjustment may have to be made at a later date. Why create extra work for yourself.