A 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.

What is a Chargeback in Accounting?

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.

Types of Chargebacks in QuickBooks

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:

1. Merchant Error

Chargebacks can occur if a customer’s card is wrongly billed for a subscription or product they’ve already canceled.

Examples of merchant errors include:

Difficulty finding or completing the cancellation process on the website.
Dissatisfaction with the product or service.
Attempting to bypass a complicated return process.
Recurring charges continuing after cancellation.
Exceeding the product’s return period.

2. Criminal Fraud

Unauthorized transactions can occur when fraudsters or hackers misuse a card.

Examples of criminal fraud include:

Transactions that the customer doesn’t recognize.
Charges made without the cardholder’s authorization.

3. Friendly Fraud

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:

Not wanting to pay for the product.
Avoiding restocking or handling fees.

Process to Record a Chargeback in QuickBooks

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.

How to Record a Chargeback in QuickBooks Desktop?

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:

Record the transaction as a refund
or
Write a check

Method 1: Record the Transaction (Chargeback) as a Refund

Follow these steps if you want to record a chargeback by issuing a refund to the customer:

Step 1. Access the Credit Memos/Refunds Window

Navigate to the Customers menu in QuickBooks.
Select Credit Memos/Refunds from the dropdown.

Step 2. Select the Customer

In the Customer dropdown, choose the customer who is receiving the refund.

Step 3. Enter Refund Details

Add the necessary products and services that need to be refunded.
Ensure that the amounts, quantities, and any related notes are accurately entered.

Step 4. Save the Refund

Click Save & Close to proceed.
A prompt will appear showing the Available Credit window.

Step 5. Choose Refund Option

In the Available Credit window, select Give a refund and click OK.

Step 6. Issue the Refund

The Issue a Refund window will open.
In the Issue this refund via field, select the refund method:
- If choosing Cash or Check, specify the account used to pay the refund.
- If refunding via Credit Card, ensure that the appropriate credit card account is selected.
Click OK to finalize the refund.

Method 2: Record the Transaction as a Business Expense

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.

Write a Check:

Writing a check in QuickBooks allows you to track the chargeback and any associated fees properly. Here’s how to do it:

Step 1. Navigate to the Banking Menu

Go to the Banking menu at the top of the screen

Step 2. Select Write Checks

From the Banking drop-down, choose Write Checks to open the check-writing window.

Step 3. Choose Your Bank Account

In the Bank Account field, select the account from which the chargeback or fee will be deducted.

Step 4. Enter Payee and Amount

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.

Step 5. Add a Memo (Optional)

If needed, add a Memo to remind yourself of the chargeback’s reason or related details for future reference.

Step 6. Use the Expenses or Items Tab

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).

Step 7. Save and Close

Once you’ve filled in all the required fields and verified the details, click Save & Close to complete the transaction.

Regular checks

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:

Navigate to the Banking menu in the first place.
Then, select Write Checks.
Bank Account: A Bank account is an account where the money will be taken from.
Ending Balance: Balance of the given bank account as of the date of writing the checks.
Pay to the Order of: Should be the Payee Name or whoever the check was issued for.
No.: The number is assigned depending on the check number preference you set in QuickBooks.
Date: Use the date when you issue the check.
Amount: Check amount in numbers. Below the Pay to the order field will automatically show the Dollar amount in words.
Address: The payee address is automatically populated from the payee name setup.
Memo: This field can be left blank but mostly, it is used as an unofficial note for additional details like the account information, the period, and what the payment is for.
Print Later or Pay Online: Tick mark the Print Later checkbox if you need to print the check at a later time or the Pay Online checkbox if you will process an online payment.
Expenses or Items tab
- Click on the Expense tab to enter shipping charges, liability (in cases of payments for liabilities/loans), and other expenses not associated with any item in QuickBooks.
- Hit the Item tab to choose the appropriate item on the drop-down list.
Press Save & Close.

Other Check forms

Bill Payment Check: These checks are generated when you choose the Pay Bills option in QuickBooks Desktop.
Sales Tax Checks: Checks created to pay your sales tax liabilities.
Paycheck: Issued to an employee in payment of salary or wages.
Payroll Liability Checks: Checks are created to pay or remit payroll taxes you withheld from employees or whatever your company owes as a result of your payroll. These include 401(k) contributions, Health Insurance contributions, Union dues, and Garnishment for child support.

On the other hand, you can follow these steps to keep your invoice unpaid:

Go to the Customers menu, then click on Customer Center.
Locate and select the customer from the Customers & Jobs tab.
Next, choose Received Payments from the show dropdown in the Transactions section.
Click twice on the payment and hit the Delete tab at the top.
When you’re ready, press the OK button.

Manually Enter a Chargeback in QuickBooks Desktop

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:

Go to the Banking menu and then select Write Checks.
Choose the Bank account where the check will be posted.
Now, enter the name of the customer in the Pay to the Order of.
Type the total amount of the refund or credit.
Input the Credit Memo numbers under the section for Memo.
After this, navigate to the Expenses tab.
Select Accounts Receivable in the Account column.
Then, write down the amount of the refund and the name of the customer.
Finally, press Save and Close.

How to Enter a Chargeback in QuickBooks Online?

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;

Process the transaction as a refund
or
Record the transaction as a business expense

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:

Record the Transaction as a Refund

Hit the +New icon and then select Refund Receipt or Give Refund.
Choose the Customer from the Customer drop-down 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 you deposited the payment for the invoice from the Refund From 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.

Record the Transaction as a Business Expense

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.

Important Notes:

Chargebacks should be recorded separately from refunds to maintain clear financial records.
Ensure that all entries are categorized correctly to facilitate accurate reporting and reconciliation in your accounts.
Regularly review your Customer Balance Summary report to track any outstanding balances related to chargebacks

What to do when you get a Chargeback in QuickBooks?

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:

If the sale and refund amounts are different.
If you (the merchant) issue a credit to the card after the chargeback has been posted to your account. If this happens, send a copy of the credit issued to the card or proof that a refund was given ( such as the front and back copy of the cashed refund check).
If you issue a refund outside your QuickBooks Payments. At this moment, send proof of that payment to us.

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.

How to Handle a Chargeback in QuickBooks Online?

If you receive a chargeback, avoid issuing a refund directly to the customer. Here’s how to handle it properly:

Step 1: Figure Out the Reason for the Chargeback

The first step in handling a chargeback is to identify the reason behind it. This could range from billing or invoice errors, like overcharging a customer, or even a customer not recognizing the transaction. Understanding the reason is essential for determining the next steps.

Step 2: What to Do When You Get a Chargeback

Chargeback Notification: QuickBooks Payments will notify you when a customer disputes a charge with their bank. Don’t issue any refunds (cash, check, or credit card) directly to the customer.
Issues to Watch For: If you have issued a refund through another method or if the sale and refund amounts don’t match, QuickBooks might not be able to process the chargeback correctly, and you could be debited the original amount plus a $25 fee.

Step 3: Responding to the Chargeback

Retrieval Request: This is often a request for more information before the chargeback. QuickBooks will provide details such as the transaction amount, date, and card info. You’ll need to send a copy of the signed sales receipt by the specified deadline to avoid a chargeback.
Chargeback Response: If a chargeback occurs, you may have the option to submit a rebuttal. Follow the instructions in the email from QuickBooks, and provide supporting documents like proof of delivery, signed receipts, or communications with the customer, depending on the chargeback reason.

Step 4: Communicate with Your Customer

Keep in Touch: Try to resolve the dispute directly with the customer. If they agree the issue is resolved, ask them to send a letter confirming this and contact their bank to retract the chargeback.
Retraction: If the chargeback is canceled by the customer’s bank, request a letter on the bank’s letterhead confirming the chargeback was dropped, and send it to QuickBooks.

Step 5: Follow Up on Your Response

Decision Timeline: After submitting your rebuttal, it can take up to 90 days for a decision from the card issuer. QuickBooks will notify you of the result.
Outcome: If the dispute is not resolved in your favor, you’ll receive a no-recourse notice explaining the decision.

By following these steps, you can effectively manage a chargeback in QuickBooks Online and reduce potential fees.

What is Chargeback Protection in QuickBooks?

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.

Key Details:

Eligibility:
- Available only for merchants enrolled in QuickBooks Payments.
- Supports credit and debit card transactions only (not applicable for ACH, PayPal, or Venmo).
- Available in QuickBooks Online (US only).
How to Sign Up:
1. Sign in as the primary admin of your QuickBooks Online account.
2. Check your eligibility and enable Payments Dispute Protection.
Coverage: Once enabled, all credit and debit card transactions processed via QuickBooks Payments are automatically covered.
Costs:
- A fee as low as 0.99% is added to every credit or debit card transaction.
Managing Enrollment:
- You can cancel at any time via Settings > Payments > Payments Dispute Protection.
- No refunds for previously paid fees.

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.

Final Words!

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.

Frequently Asked Questions (FAQs)

Why did QuickBooks debit my account for the chargeback without notifying me?

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.

Is a chargeback different than a dispute?

Yes, a chargeback is different from a dispute, though they are related processes.

A dispute happens when a customer questions a transaction and raises concerns with their bank. The customer provides an explanation and any supporting evidence for their claim.
On the other hand, if the bank finds the dispute valid, it escalates to a chargeback, where funds are reversed from the merchant’s account back to the customer. In short, a dispute is the initial step, while a chargeback is the final result if the bank decides in the customer’s favor.

What Is a Chargeback in Accounts Receivable?

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.

How Does Chargeback Protection Work?

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.

How do I categorize a chargeback in QuickBooks?

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:

1. Categorizing Chargebacks

Fraud-Related Chargebacks: If a chargeback is caused by fraud, you can categorize it under a specific expense account such as “Fraud Losses” to separate it from other chargebacks.
Product and Shipping Costs: Consider creating subcategories under chargebacks, like “Merchandise Costs” and “Shipping Costs,” to track how these contribute to the overall loss.

2. Tracking Financial Impact

To understand how chargebacks affect your bottom line, use a detailed account structure in QuickBooks. For instance, create a specific account like “Chargeback Expenses” to track losses and fees.

3. Recording Chargebacks in QuickBooks

Initial Chargeback: Record the transaction as “Accounts Receivable” or create a sub-account like “Accounts Receivable – Chargebacks” to show the amount owed back to your business.
Winning the Dispute: If you successfully dispute the chargeback, credit the amount back to your cash account and debit “Accounts Receivable.”
Losing the Dispute: If the chargeback is upheld or you choose not to dispute it, write off the amount by categorizing it under a “Bad Debts Expense” account.

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.

How to Record a Chargeback in QuickBooks Desktop/Online?

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