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+1-802-778-9005A chargeback is a process when the transaction gets disputed and the money goes back to the payer often due to a dispute or unauthorized transaction. In other words, the sale is “charged back” to you. It is so essential to record it accurately in QuickBooks for proper accounting and financial management. Proper recording of chargeback helps in maintaining transparency and allows businesses to track customer disputes effectively.
Sometimes, a retrieval request will come before a chargeback. A retrieval request is a request from the card-issuing bank for documentation about the sale. A common reason for a retrieval request is that the cardholder doesn’t recognize the charge.
In accounting a chargeback is a forced reversal transaction initiated by a customer’s bank, usually due to a dispute over fraud or errors. A chargeback occurs when the issuing bank transfers funds from a merchant’s account back to the customer’s account. This usually happens if the customer disputes a charge and the bank determines the dispute is valid.
QuickBooks records chargebacks in three types: merchant error, criminal fraud, and friendly fraud. These can arise from billing errors, unauthorized transactions, or customers disputing legitimate charges.
There are 3 types of chargebacks:
Chargebacks are incurred due to merchant errors, such as the trader charging the card holder twice or changing the card holder more than required, or charging a card holder for products not delivered as agreed. Chargebacks can also occur if a customer’s card is wrongly billed for a subscription or product they’ve already canceled.
Examples of merchant errors include:
Fraud chargebacks are touch transactions where a criminal uses the stolen bank card information to purchase items. Unauthorized transactions can occur when fraudsters or hackers misuse a card.
Examples of criminal fraud include:
Friendly fraud occurs when a cardholder disputes a legitimate charge with their bank instead of seeking a refund directly from the merchant. This practice is often used to obtain a refund through the bank without addressing the merchant first.
Examples of friendly fraud include:
To record a chargeback in QuickBooks, the process varies slightly depending on whether you are using QuickBooks Online or QuickBooks Desktop. Below are step-by-step instructions for both versions.
When a customer initiates a chargeback, the issuing bank notifies the acquiring bank, which debits the amount from the merchant’s account. The merchant receives an alert with a reason code and can either accept or dispute the chargeback. They have 7-10 days to provide evidence, and resolution takes 30-90 days.
There are two ways to record a chargeback in QuickBooks Desktop and keep your books organized or up-to-date. Here’s how you can enter a chargeback through a refund or write a check:
By manually working through a chargeback entry, you can directly modify your accounts by debiting the expense account before crediting the related bank or credit card amount. It offers precise control over all the changes, which makes it ideal for institutionalized businesses that have to categorize chargebacks.
Follow these steps if you want to record a chargeback by issuing a refund to the customer:
Another option is to record a chargeback in QuickBooks desktop as a business expense by writing a check. Checks are written orders to a bank to pay a certain amount to the person who is depositing it. They’re considered as good as cash. Mirroring the chargeback in records without any need for compilations and other alterations can help. Subtracting this aspect is a relevant method for enterprises that do not lay great emphasis on flexibility in recording.
Writing a check in QuickBooks allows you to track the chargeback and any associated fees properly. Here’s how to do it:
Go to the Banking menu at the top of the screen
From the Banking drop-down, choose Write Checks to open the check-writing window.
In the Bank Account field, select the account from which the chargeback or fee will be deducted.
Enter the Payee (typically, this would be the merchant or financial institution processing the chargeback) and the Amount that was deducted from your account. Be sure to input the correct amount, as this reflects the chargeback amount.
If needed, add a Memo to remind yourself of the chargeback’s reason or related details for future reference.
If the chargeback involves a specific product or service, you can use the Items tab. However, if the chargeback is an expense, use the Expenses tab and select the relevant expense account (e.g., bank fees or chargeback fees).
Once you’ve filled in all the required fields and verified the details, click Save & Close to complete the transaction.
You generally use regular checks to pay for a fixed asset, inventory and non-inventory parts, service, other charges, and any expense you track in QuickBooks Desktop. You can also use this form to keep money into a petty cash account or pay credit card dues.
Write a Check for the Chargeback, do the following:
On the other hand, you can follow these steps to keep your invoice unpaid:
QuickBooks Desktop doesn’t track a refund and chargeback in a single transaction so you are recommended to record a chargeback manually. Therefore, you need to create separate entries to track the chargeback and the refund.
You can generate a check affecting Accounts Receivable and then establish an expense fee for the chargeback in QuickBooks Desktop. This process will result in a positive balance on the customer profile and take out money from the affected bank as well as record the fee for the chargeback.
Here’s how to create a write check manually:
To enter a chargeback in QuickBooks Online, process it as a refund or a business expense. Enter the details, select the appropriate accounts, and save the transaction.
You can record a chargeback in QuickBooks Online using two methods;
Either way, a chargeback transaction will show up on your bank statement as a separate item. Here’s how you can enter a chargeback in QuickBooks Online:
This method is applied when a chargeback implies a cash refund to the buyer or the customer. It is usually seen where the chargeback was as an outcome of a disagreement between a consumer and a merchant or the consumer demanding a refund. When recording the chargeback as a refund, the business person accepts the reversal of income and captures the reduction in revenue correctly. Below are the steps:
Hit the +New icon and then select Refund Receipt or Give Refund.
Choose the Customer from the Customer drop-down if you want to refund.
Now, opt for the Refund Receipt date.
Enter information about the original sale for which you want to issue the refund in the table.
Type the amount you want to refund.
After this, select the credit card used for the original payment from the Payment Method drop-down list.
Click on the bank where you deposited the payment for the invoice from the Refund from the drop-down menu.
Add all products or services the customer returned in the Product or Service column.
Make sure you’ve entered all the details for the refund and press Save.
Under the Credit Card Transaction Status window, choose Print if desired.
Hit the Close tab.
This is undertaken where there is a recorded chargeback in the expense without the customer directly refunding it. Used to monitor the different costs incurred by the business as one of the operating expenses or lost funds due to chargeback. This method helps make your accounts more accurate with the expense incurred in the chargeback that can be under the “Chargeback Expense” or “Bad Debt” account. Below are the steps:
Select the + New icon and then click Expense.
Choose the Bank account and the customer name that was used for the original credit card payment transaction from the Payee drop-down.
Delete the check number (you can write a note to indicate that this check is a chargeback).
Select the Payment Account, Payment date, and Payment method.
After this, clear the Print Later checkbox.
Click on the account that you charge for the transaction from the Account column.
Enter the total amount of the chargeback item.
Press the Save and Close tabs.
Once done, you can also run the Customer Balance Summary report to let you know what payments and invoices make up each customer’s current outstanding balance. For this, just navigate to the Reports menu and then search for Customer Balance Summary report.
Chargebacks can happen for several different reasons. It can be a result of an error, fraud, or a dissatisfied customer. If you don’t handle them appropriately, they can cost you time and money. Here’s what to do if you get a chargeback for a payment you processed with QuickBooks Payments.
- Important: If you receive a chargeback, don’t issue a credit to the cardholder’s (your customer’s) card or any other type of refund, such as check or cash.
When customers dispute a charge with their bank or credit card company, the financial institution notifies QuickBooks Payments. QuickBooks analyzes the card for credits as soon as the chargeback is received.
There are cases when we’re unable to match the chargeback to the credit:
The customer’s card issuer credits the original charge amount to the cardholder if you didn’t provide a credit or if we can’t match the credit to the chargeback. The credited amount, plus a $25 fee, is then debited to you, the merchant. This fee isn’t a penalty. It’s used to cover related costs.
If you receive a chargeback, avoid issuing a refund directly to the customer. Here’s how to handle it properly:
By following these steps, you can effectively manage a chargeback in QuickBooks Online and reduce potential fees.
Chargeback Protection, also known as Payments Dispute Protection, is a feature in QuickBooks designed to reduce the risks associated with disputed credit or debit card transactions, whether fraudulent or non-fraudulent. It’s available to eligible merchants using QuickBooks Payments.
Recommendation: It’s advised to maintain the coverage for 3–12 months after your last transaction if you plan to close your QuickBooks account.
Note: There’s a coverage limit of $10,000 per chargeback and an annual limit of $25,000 per year. Your coverage limit resets to $25,000 every year, on the anniversary of your signup date.
Below are the recommendations for recording a chargeback in QuickBooks:
It is a good practice to keep a full record of all transactions made, any form of communication with the customer, and any backup documentation in support of chargebacks when required.
Reclassify chargebacks in the right expense codes(for example, in the Bad Debt or Chargeback expense codes) for better tracking.
Record all the chargebacks as soon as they are discovered because the records should always remain updated as the accounts in question.
This means that individuals must check bank statements and credit card statements more often to spot chargebacks and ensure that they appear properly in QuickBooks.
To avoid overlooking chargebacks, reconcile bank statements and credit card statements to QuickBooks on a routine basis.
Each chargeback entry should have additional comments that include information such as the cause of the chargeback and the customer involved.
If the chargeback is more complex, journal entries are even more crucial because the chargeback will have to be entered into the accounts.
Set up bank feeds and notifications in QuickBooks that can notify you whenever new chargebacks occur, thereby increasing the speed of charging.
Thus, recording a chargeback is crucial for maintaining the integrity of your financial records or statements. Chargebacks can have a significant impact on the reconciliation of accounts as they create discrepancies in your financial data and may result in refunds, disputes or unauthorized transactions. If chargebacks are entered accurately in QuickBooks, it enables businesses to analyze patterns, identify areas for improvement, and make informed-decisions to minimize future chargebacks.
When a chargeback is initiated, QuickBooks Payments automatically debits your account. This happens because the card-issuing bank has met all the necessary requirements for the chargeback, as outlined in the merchant agreement you accepted when setting up your QuickBooks Payments account. Unfortunately, QuickBooks does not send a prior notification, as this process is part of the standard terms and conditions. If you have questions or need assistance, reviewing your merchant agreement or contacting QuickBooks experts can help clarify the situation.
Yes, a chargeback is different from a dispute, though they are related processes.
Users of accounting software like Oracle or QuickBooks can integrate chargeback accounting by utilizing accounts receivable features, effectively recording a chargeback as a receivable amount owed to the merchant.
We’ll assess risk for your Advanced Credit and Debit Card transactions and decline potentially fraudulent payments. If a transaction is later deemed fraudulent, we’ll protect it from chargebacks once you submit the necessary info. We monitor, review, and waive chargeback fees if disputes are resolved in your favour.
Managing chargebacks in QuickBooks can be challenging, especially when you’re trying to track their impact on your business. To categorize a chargeback in QuickBooks, you can follow specific steps depending on whether you’re using QuickBooks Online or QuickBooks Desktop. Chargebacks can be recorded as either a business expense or a refund, and it’s essential to select the appropriate method based on the situation. Here’s a simplified guide to categorize chargebacks effectively:
A chargeback journal entry refers to an account entry in the accounting books of a business organization used in recording chargeback transactions. It helps in ensuring that the image of the chargeback is reflected as it is in the company’s accounts. This type of entry typically involves:
A chargeback journal entry also assists in providing accountability of the effects of chargebacks on a business’s finances, therefore having correct records and correct statements.
Disclaimer: The information outlined above for “How to Record a Chargeback in QuickBooks Desktop/Online?” is applicable to all supported versions, including QuickBooks Desktop Pro, Premier, Accountant, and Enterprise. It is designed to work with operating systems such as Windows 7, 10, and 11, as well as macOS.
