Cheques received from Supplier for overpayment

Should this cheque be banked as Income?

No. It should be process through the purchase ledger.

What to do

Send it to Payments (marked for Lisa's attention) with the information relating to the refund – a credit note/duplicate payment overpayment and they will process the credit against the supplier number. 

They then bank it in the Daily Income Account and then process a “dummy” payment/credit in AP. 

** If the refund is credited direct to our bank account (bacs) we follow the same process**