Penalities were paid on overdue taxes back in 2005. The original transaction was debited to Accts. Payable. Now, I received a partial refund on that amount in 2007. The original transaction was made incorrect. Since the books are closed, How do I correct the transaction and in what account do I put the refund in? Thanks for any recommendations.

I thought about that also, but it is a non-profit organization if I put it under other income that would mess up the buget that the company has allocated. I did a reverse transaction this year because the previous bookkeeper put the penalities amount in Accts. Pay. Then I opened a Pen. & Int. Exp. Acct. to correct the original transaction. The refund was put in and decreased the Exp. Acct. and increased the Cash Acct. I have just received another invoiced for penalties and interest that occurred because she paid the taxes late, so I need an acct. like Pen. & Int. Exp. to put that amount in. So could this work?