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How to Record a Chargeback in QuickBooks?

A chargeback is a process when the transaction gets

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 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.

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. You can either 

  • Record the transaction as a refund or 
  • Write a check

Record the Transaction as a Refund

Here’s how you can enter a chargeback through a refund:

  1. Navigate to the Customers menu and then choose Credit Memos/Refunds.
  2. Select the customer you need to refund in the Customer:Job dropdown.
  3. Now, enter the products and services you need to refund.
  4. Once done, press Save & Close.
  5. You’ll be prompted to the Available Credit window.
  6. Choose to Give a refund and then hit the OK tab.
How to Record a Chargeback in QuickBooks
  1. If prompted, select how you want to refund the transaction from the Issue this refund via dropdown on the Issue a Refund window. 
  2. However, if you choose Cash or Check, opt for the account used to pay the refund.
How to Record a Chargeback in QuickBooks
  1. Click OK when finished.

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

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. To write checks, do the following:

  1. Navigate to the Banking menu in the first place. 
  2. Then, select Write Checks.
How to Record a Chargeback in QuickBooks
  1. Bank Account: A Bank account is an account where the money will be taken from.
  2. Ending Balance: Balance of the given bank account as of the date of writing the checks.
  3. Pay to the Order of: Should be the Payee Name or whoever the check was issued for.
  4. No.: The number is assigned depending on the check number preference you set in QuickBooks.
  5. Date: Use the date when you issue the check.
  6. Amount: Check amount in numbers. Below the Pay to the order field will automatically show the Dollar amount in words.
  7. Address: The payee address is automatically populated from the payee name setup.
  8. 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.
  9. Print Later or Pay Online: Tickmark 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.
  10. 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.
  1. 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:

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

Manually Record 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:

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

Record a Chargeback in QuickBooks Online

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

  1. Hit the +New icon and then select Refund Receipt or Give Refund.
  2. Choose the Customer from the Customer dropdown you want to refund.
  3. Now, opt for the Refund Receipt date. 
  4. Enter information about the original sale for which you want to issue the refund in the table.
  5. Type the amount you want to refund.
  6. After this, select the credit card used for the original payment from the Payment Method drop-down list.
  7. Click on the bank you deposited the payment for the invoice from the Refund From drop-down menu. 
  8. Add all products or services the customer returned in the Product or Service column.
  9. Make sure you’ve entered all the details for the refund and press Save.
  10. Under the Credit Card Transaction Status window, choose Print if desired.
  11. Hit the Close tab.

Record the Transaction as a Business Expense

  1. Select the + New icon and then click Expense. 
  2. Choose the Bank account and the customer name that was used for the original credit card payment transaction from the Payee drop-down. 
  3. Delete the check number (you can write a note to indicate that this check is a chargeback).
  4. Select the Payment Account, Payment date, and Payment method.
  5. After this, clear the Print Later checkbox.
  6. Click on the account that you charge for the transaction from the Account column.
  7. Enter the total amount of the chargeback item.
  8. 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.

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.

By : June 21, 2024
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