diff --git a/app/Services/BudgetPeriodService.php b/app/Services/BudgetPeriodService.php
index 589a5cb6..8caf03c2 100644
--- a/app/Services/BudgetPeriodService.php
+++ b/app/Services/BudgetPeriodService.php
@@ -40,7 +40,7 @@ class BudgetPeriodService
 
         if ($budget->rollover_type->value === 'carry_over') {
             $totalSpent = $period->budgetTransactions()->sum('amount');
-            $remaining = $period->allocated_amount - abs($totalSpent);
+            $remaining = $period->allocated_amount - $totalSpent;
 
             if ($remaining > 0) {
                 $carriedOverAmount = $remaining;
diff --git a/app/Services/BudgetTransactionService.php b/app/Services/BudgetTransactionService.php
index cc117e1b..2d9d2214 100644
--- a/app/Services/BudgetTransactionService.php
+++ b/app/Services/BudgetTransactionService.php
@@ -62,7 +62,7 @@ class BudgetTransactionService
                 BudgetTransaction::create([
                     'transaction_id' => $transaction->id,
                     'budget_period_id' => $period->id,
-                    'amount' => abs($transaction->amount),
+                    'amount' => -$transaction->amount,
                 ]);
             }
         }
@@ -126,7 +126,7 @@ class BudgetTransactionService
                     BudgetTransaction::create([
                         'transaction_id' => $transaction->id,
                         'budget_period_id' => $period->id,
-                        'amount' => abs($transaction->amount),
+                        'amount' => -$transaction->amount,
                     ]);
 
                     $assignedCount++;
diff --git a/database/migrations/2026_02_24_193117_fix_budget_transaction_refund_amounts.php b/database/migrations/2026_02_24_193117_fix_budget_transaction_refund_amounts.php
new file mode 100644
index 00000000..8dda3039
--- /dev/null
+++ b/database/migrations/2026_02_24_193117_fix_budget_transaction_refund_amounts.php
@@ -0,0 +1,34 @@
+<?php
+
+use Illuminate\Database\Migrations\Migration;
+use Illuminate\Support\Facades\DB;
+
+return new class extends Migration
+{
+    /**
+     * Fix budget_transactions where the original transaction was a refund (positive amount).
+     * These were incorrectly stored as positive via abs() — they should be negative
+     * to correctly reduce the budget's cumulative spending.
+     */
+    public function up(): void
+    {
+        DB::statement('
+            UPDATE budget_transactions
+            SET amount = -amount
+            WHERE transaction_id IN (
+                SELECT id FROM transactions WHERE amount > 0
+            )
+        ');
+    }
+
+    /**
+     * Revert: make all budget_transaction amounts positive again (original behavior).
+     */
+    public function down(): void
+    {
+        DB::statement('
+            UPDATE budget_transactions
+            SET amount = ABS(amount)
+        ');
+    }
+};
diff --git a/tests/Feature/BudgetTransactionServiceTest.php b/tests/Feature/BudgetTransactionServiceTest.php
index d69dc9eb..28dbd791 100644
--- a/tests/Feature/BudgetTransactionServiceTest.php
+++ b/tests/Feature/BudgetTransactionServiceTest.php
@@ -240,14 +240,14 @@ test('assignHistoricalTransactionsToPeriod works with transactions having multip
     expect($count)->toBe(1);
 });
 
-test('assignHistoricalTransactionsToPeriod stores absolute value of amount', function () {
+test('assignHistoricalTransactionsToPeriod stores negated transaction amount for expenses', function () {
     $category = Category::factory()->create(['user_id' => $this->user->id]);
 
-    $transaction = Transaction::factory()->create([
+    Transaction::factory()->create([
         'user_id' => $this->user->id,
         'category_id' => $category->id,
         'transaction_date' => now()->subDays(5),
-        'amount' => -5000, // Negative amount
+        'amount' => -5000, // Expense (negative)
     ]);
 
     $budget = Budget::factory()->create([
@@ -265,7 +265,101 @@ test('assignHistoricalTransactionsToPeriod stores absolute value of amount', fun
 
     $budgetTransaction = $period->budgetTransactions()->first();
 
-    expect($budgetTransaction->amount)->toBe(5000); // Should be positive
+    expect($budgetTransaction->amount)->toBe(5000); // -(-5000) = 5000, adds to spending
+});
+
+test('assignHistoricalTransactionsToPeriod stores refund as negative amount', function () {
+    $category = Category::factory()->create(['user_id' => $this->user->id]);
+
+    Transaction::factory()->create([
+        'user_id' => $this->user->id,
+        'category_id' => $category->id,
+        'transaction_date' => now()->subDays(5),
+        'amount' => 1000, // Refund (positive)
+    ]);
+
+    $budget = Budget::factory()->create([
+        'user_id' => $this->user->id,
+        'category_id' => $category->id,
+    ]);
+
+    $period = BudgetPeriod::factory()->create([
+        'budget_id' => $budget->id,
+        'start_date' => now()->subDays(30),
+        'end_date' => now()->addDays(30),
+    ]);
+
+    $this->service->assignHistoricalTransactionsToPeriod($period);
+
+    $budgetTransaction = $period->budgetTransactions()->first();
+
+    expect($budgetTransaction->amount)->toBe(-1000); // -(+1000) = -1000, reduces spending
+});
+
+test('budget spending correctly reflects mix of expenses and refunds', function () {
+    $category = Category::factory()->create(['user_id' => $this->user->id]);
+
+    // $50 expense
+    Transaction::factory()->create([
+        'user_id' => $this->user->id,
+        'category_id' => $category->id,
+        'transaction_date' => now()->subDays(5),
+        'amount' => -5000,
+    ]);
+
+    // $10 refund
+    Transaction::factory()->create([
+        'user_id' => $this->user->id,
+        'category_id' => $category->id,
+        'transaction_date' => now()->subDays(3),
+        'amount' => 1000,
+    ]);
+
+    $budget = Budget::factory()->create([
+        'user_id' => $this->user->id,
+        'category_id' => $category->id,
+    ]);
+
+    $period = BudgetPeriod::factory()->create([
+        'budget_id' => $budget->id,
+        'start_date' => now()->subDays(30),
+        'end_date' => now()->addDays(30),
+        'allocated_amount' => 10000,
+    ]);
+
+    $this->service->assignHistoricalTransactionsToPeriod($period);
+
+    // Net spending should be $40 (5000 - 1000 = 4000)
+    $totalSpent = (int) $period->budgetTransactions()->sum('amount');
+    expect($totalSpent)->toBe(4000);
+});
+
+test('assignTransaction stores refund as negative budget transaction amount', function () {
+    $category = Category::factory()->create(['user_id' => $this->user->id]);
+
+    $budget = Budget::factory()->create([
+        'user_id' => $this->user->id,
+        'category_id' => $category->id,
+    ]);
+
+    $period = BudgetPeriod::factory()->create([
+        'budget_id' => $budget->id,
+        'start_date' => now()->subDays(30),
+        'end_date' => now()->addDays(30),
+    ]);
+
+    // Create a refund transaction
+    $refund = Transaction::factory()->create([
+        'user_id' => $this->user->id,
+        'category_id' => $category->id,
+        'transaction_date' => now()->subDays(2),
+        'amount' => 2000, // positive = refund
+    ]);
+
+    $this->service->assignTransaction($refund);
+
+    $budgetTransaction = $period->budgetTransactions()->first();
+    expect($budgetTransaction->amount)->toBe(-2000);
 });
 
 test('assignHistoricalTransactionsToPeriod only assigns to correct user', function () {