How To Record A Refund in QuickBooks Online and Desktop – Learn the Process

QuickBooks Desktop, a powerful accounting software from Intuit, provides a variety of tools to help businesses manage their financial activities efficiently.

For every business, keeping correct financial records is essential, and one way to do this is by recording a refund in QuickBooks.  Accurately recording a return facilitates accurate financial statements and report preparation, in addition to helping with cash flow tracking.

Small to medium-sized businesses frequently utilize QuickBooks accounting software, which provides a simplified procedure for recording refunds and guarantees accurate adjustment of both income and costs. QuickBooks offers the tools businesses need to manage refunds accurately and efficiently, whether they are handling vendor reimbursements, consumer returns, or any other kind of reimbursement.

However, this article will guide you step by step through the process of categorizing refunds in QuickBooks Desktop, helping you learn how to accurately and effectively record refund transactions.

What is Refunds in QuickBooks?

In QuickBooks, a refund is a transaction where money is returned to a customer or vendor, often due to a return or overpayment. It is recorded to reverse or adjust previous payments, ensuring accurate financial records by reducing the original payment amount or expense.

What are the types of refunds, and how do you issue a refund in QuickBooks?

In QuickBooks, you can issue three types of refunds: partial refunds, customer refunds, and payment refunds. Each involves adjusting transactions, updating financial records, and ensuring transparency for accurate financial reporting and customer satisfaction.

The different types of refunds are mentioned below:

1. Partial Refunds

Using QuickBooks online’s partial refund feature, you can reimburse a portion of the original amount. This provides you with choices for responding to vendor or customer refund requests. The refund amount is calculated using the percentages of the initial payment that are being reimbursed. Adjustment entries can be performed in QuickBooks online to ensure financial transaction transparency and accurately depict the partial refund.

2. Refunding to a Customer

In QuickBooks, you have to execute a return request or return the overcharged amount when you get a refund. Customers submit refund requests, which are subsequently reviewed and approved by authorized staff. To make sure the amount reimbursed matches the original transaction, you must reconcile the payment in QuickBooks after receiving permission.

The customer receives a complete email notification as soon as the reimbursement is processed on schedule. Transparency and trust are preserved in this way. QuickBooks enables businesses to maintain both financial correctness and customer satisfaction with a seamless refund handling procedure.

3. Refunding a Payment

Reversing the related transaction, updating financial records, and ensuring an exact reconciliation of the refunded amount is crucial when refunding a payment in QuickBooks. First, locate the original payment transactions in QuickBooks and choose the appropriate option for completing the refund. When the refund is initiated, accounting adjustments must be made to ensure that the financial records accurately represent the refund.

Confirm that the new transaction data aligns with the financial statements. By adhering to the guidelines, businesses can ensure that their financial records are accurate and that their refunding procedures are transparent.

How to record a refund in QuickBooks Online?

To record a refund in QuickBooks Online, create a credit memo for the customer, apply the refund to their account, and update your bank transactions to ensure accurate reconciliation.

Record a Customer Refund for a Paid Invoice in QuickBooks Online

If the customer has made an excess payment, you don’t require a credit memo as you already have an unapplied credit that acts as your credit memo.

If you are using Online Banking, click on Transactions and match the record on the Bank transaction page. 

Record a Supplier Refund for a Paid Bill in QuickBooks Online

Note: If the supplier has received more money than expected, you will already have an unapplied credit that serves as your supplier credit. Therefore, you won’t need the supplier credit.

• Choose or type the preferred supplier in the Received From area.
• Click the Accounts Payable option in the Account field.
• Enter the refund amount in the Amount section.
• Click the Zero-rated option in the Sales Tax column.
• Click “Save” and exit.

Record a Supplier Refund On a Credit Card in QuickBooks Online

Record a Refund for Goods or Services that Didn’t Satisfy the Customer in QuickBooks Online

Refund a Customer’s Over-Payment or Credit in QuickBooks Online

To refund a customer’s overpayment or credit in QuickBooks Online, record the refund using Cheque or Expense, then link it to the customer’s credit or overpayment to balance the transaction.

Refunds to customers can be recorded using Cheque or Expense if:

When you record a refund using Cheque or Expense, you lower the balance at your bank and balance any open credit, over-payment, or prepayment made by the customer.

Step 1: Enter the customer’s refund

1. Click + New and choose between Cheque or Expense.
2. Choose the client from the Payee drop-down list that you wish to reimburse.
3. Choose the bank account where you deposited the excess money from the Payment Account drop-down menu.

Note: You must choose the Bank Account option from the menu if you are choosing Cheque.

1. Choose Accounts Receivable from the Category column’s first line.
2. In the Amount section, enter the amount you wish to be refunded. Note: If a sales tax is added to the check and the amount does not match the credit memo (refund amount), it is improper.
3. After completing the remaining fields as necessary, click Save and Close.

Step 2: Link the refund to the customer’s credit or overpayment

1. After choosing Add New, choose Accept Payment.
2. When you record the refund, select the customer to whom you used to pay the bill or write the check.
3. As you see fit, fill in the remaining fields.
4. The checkbox for the expense or check you made while recording the refund should be selected in the Outstanding Transaction section.
5. Note: This step is completed for you if your automation to apply bill payments is enabled.
6. After confirming that the payment matches the open balance, choose Save and Close.

How to Categorize a Refund in QuickBooks

Refunds in QuickBooks can be categorized based on whether they are from a vendor or to a customer.

• For Vendor Refunds
• Go to Expenses > Vendors
• Open the vendor’s profile
• Find and select the refunded bill or expense
• Click Add credit or Issue refund
• Enter the refund amount and choose the correct expense account
• Save the transaction
• For Customer Refunds
• Click + New > Refund Receipt
• Select the customer receiving the refund
• Choose the bank account used for the refund
• Add the returned items or services
• Enter details like date, quantity, rate, and amount
• Save and close
• For Credit Card Refunds

How to record a refund in QuickBooks Desktop?

To create a bill for the credit amount affecting the Wash Account in QuickBooks Desktop, enter the refund under “Enter Bills,” select the vendor, and apply it to the Wash account. Then, apply the credit using “Pay Bills,” select “Set Credit,” and finalize the payment.

Record a vendor refund check for a bill that has already been paid in QuickBooks Desktop

To record a vendor refund check for a paid bill in QuickBooks Desktop, record the deposit, create a bill credit, and link the deposit to the bill credit using Pay Bills.

Follow the step-by-step information below:

Step 1: Record a Deposit of the Vendor Check

1. Click the Banking menu and choose “Make Deposits.”
2. Click OK if the Payments to Deposit window opens.
3. Choose the merchant that sent you the refund by using the Received from the drop-down menu in the Make Deposits window.
4. Choose the relevant Accounts Payable account from the drop-down menu under “From Account.”
5. Enter the Vendor check’s actual amount in the Amount column.
6. Put in the class, memo, check number, and mode of payment. (Optional Step)
7. Click Save & Close.

Step 2: Record a Bill Credit for the Refunded Amount

1. Choose Enter Bills from the Vendors menu.
2. To take into consideration the return of the products, select the Credit radio button.
3. Put the vendor’s name here.
4. Enter the Accounts on the original bill by selecting the Expenses tab.
5. Enter the correct amount for each account in the Amount column.
6. Click “Save” and “Close.”

Step 3: Link the Deposit to the Bill Credit

1. Click on Vendors and then Pay Bills.
2. Verify that the deposit matches the amount on the vendor’s cheque.
3. After choosing Set Credits and applying the previously prepared Bill Credit, click Done.
4. After choosing Pay Selected Bills, choose Done.

Record a Vendor Refund Check for Returned Inventory Items in QuickBooks Desktop

To record a vendor refund for returned inventory items in QuickBooks Desktop, create a bill credit for the returned items and then link the deposit to the bill credit through the Pay Bills feature.

Step 1: Record a Bill Credit for the Returned Items

1. Select Enter Bills from the Vendors menu.
2. To take into consideration the return of the products, select the Credit radio button.
3. Put the vendor’s name here.
4. Click the Items Tab.
5. Add the equivalent amounts from the reimbursement check to the returned goods.
6. Click Save & Close.

Step 2: Link the Deposit to the Bill Credit

1. Choose Pay Bills from the Vendors menu.
2. Verify that the deposit matches the amount on the vendor’s cheque.
3. After choosing Set Credits and applying the previously prepared Bill Credit, click Done.
4. After choosing Pay Selected Bills, choose Done.

Record a Vendor Refund Check that is Not Related to An Existing Bill

To record a vendor refund check that’s not tied to an existing bill in QuickBooks Desktop, deposit the refund, create a bill credit, and link the deposit to the bill credit to ensure accuracy.

Follow the step-by-step information below:

Step 1: Record a Deposit of the Vendor Check

1. Click the Banking menu and choose “Make Deposits.”
2. Click OK if the Payments to Deposit window opens.
3. Choose the merchant that sent you the refund by using the Received from the drop-down menu in the Make Deposits window.
4. Choose the relevant Accounts Payable account from the drop-down menu under “From Account.”
5. Enter the Vendor check’s actual amount in the Amount column.
6. Put in the class, memo, check number, and mode of payment. (Optional Step)
7. Click Save & Close.

Step 2: Record a Bill Credit for the Amount of the Vendor Check

1. Select Enter Bills from the Vendors menu.
2. To take into consideration the return of the products, select the Credit radio button.
3. Put the vendor’s name here.
4. Choose the Expenses tab and fill in the Accounts that you typically use to receive refunds.
5. Enter the correct amount (which might need to be prorated) for each account in the Amount column.
6. Click Save & Close.

Step 3: Link the Deposit to the Bill Credit

1. Choose Pay Bills from the Vendors menu.
2. Verify that the deposit matches the amount on the vendor’s cheque.
3. After choosing Set Credits and applying the previously prepared Bill Credit, click Done.
4. After choosing Pay Selected Bills, choose Done.

Record a Vendor Refund Check on Behalf of the Original Vendor in QuickBooks Desktop

To record a vendor refund in QuickBooks Desktop, deposit the refund check, create a bill for the deposit, apply the credit, and link it to the original vendor using a wash account for accurate tracking.

Follow the step-by-step information below:

Step 1: Create a Deposit for the Vendor Who Sent the Refund Check

1. Click the Banking menu and choose “Make Deposits.”
2. Click OK if the Payments to Deposit window opens.
3. Choose the merchant that sent you the refund by using the Received from the drop-down menu in the Make Deposits window.
4. Choose the relevant Accounts Payable account from the drop-down menu under “From Account.”
5. Enter the actual amount of the refund in the Amount section.
6. Put the class, memo, check number, and mode of payment in it.
7. Click Save & Close.

Step 2: Create a Bill for the Amount of the Deposit and apply it to the Deposit

1. Select Enter Bills from the Vendors menu.
2. Choose the merchant who sent the refund in the merchant field.
3. Enter the refund amount in the Amount Due section.
4. Choose the tab for expenses.
5. Choose a Wash account to enter in the Account section. Enter the refund amount in the Amount section.
6. Click Save & Close.
7. Choose Pay Bills from the Vendors menu.
8. After choosing the Bill, choose Set Credit.
9. After choosing the Credit, click Done.
10. After choosing Pay Selected Bills, choose Done.

Step 3: Create a Credit for the Original Vendor

1. Select Enter Bills from the Vendors menu.
2. Press the radio button for credit.
3. Choose the merchant who sent the refund in the merchant field.
4. Enter the refund amount in the Credit Amount area.
5. Choose the tab for expenses.
6. Choose the account that was used on the original bill in the Account field.
7. Enter the refund amount in the Amount section.
8. Click Save & Close.

Step 4: Create a Bill for the Amount of the Credit affecting the Wash Account and apply the Bill to the Credit

1. Select Enter Bills from the Vendors menu.
2. Choose the merchant who sent the refund in the merchant field.
3. Enter the refund amount in the Amount section.
4. Choose the tab for expenses.
5. Choose a Wash account to enter in the Account section. 
6. Enter the refund amount in the Amount section.
7. Click Save & Close.
8. Choose Pay Bills from the Vendors menu.
9. After choosing the Bill, choose Set Credit.
10. After choosing the Credit, click Done.
11. After choosing Pay Selected Bills, choose Done.

Record a vendor refund check as a credit card credit in QuickBooks Desktop

Conclusion

Ensuring the integrity and correctness of your financial records requires you to record refunds in QuickBooks. Whether they are related to vendor reimbursements or client returns, you can effectively handle refunds.

By making use of QuickBooks’ user-friendly interface and extensive feature set, you can confidently manage refunds and maintain accurate and dependable financial accounts. This will not only make bookkeeping easier, but it also helps you make smarter financial decisions and organize your company’s finances.

How to Record a Refund for Customer Overpayment in QuickBooks?

If a customer overpays an invoice, you’ll need to record the refund properly in QuickBooks to keep your books accurate. Follow these steps based on whether you use QuickBooks Online or QuickBooks Desktop.

In QuickBooks Online

Option 1: Issue a Refund Receipt

1. Go to + New and select Refund Receipt.
2. Choose the customer who overpaid.
3. Select the bank account or payment method used for the refund.
4. Enter the refund amount.
5. Save and close.

Option 2: Apply as a Credit for Future Use

1. Go to + New and select Credit Memo.
2. Choose the customer and enter the overpaid amount.
3. Later, apply this credit when creating a new invoice.

In QuickBooks Desktop

Option 1: Issue a Refund Check

1. Go to Customers > Create Credit Memos/Refunds.
2. Select the customer and enter the overpayment amount.
3. Click Give a Refund and choose the payment method.
4. Save and close.

Option 2: Apply Overpayment to Future Transactions

1. Instead of a refund, leave the overpayment as a credit on the customer’s account.
2. Use it to adjust future invoices or payments.

How to Create a Refund Receipt in QuickBooks Online

If you need to refund a customer for a returned product, overpayment, or any other reason, QuickBooks Online makes it simple with a Refund Receipt. This ensures your records stay accurate while properly tracking the transaction.

Steps to Create a Refund Receipt in QuickBooks Online

1. Go to the + New Menu
   • Click + New in the left menu and select Refund Receipt.
2. Select the Customer
   • Choose the customer who will receive the refund.
3. Enter Refund Details
   • Set the Refund Date.
   • Select the Payment Method (credit card, check, cash, etc.).
   • Choose the Bank Account where the refund will be issued.
4. Add the Refunded Item or Service
   • In the Product/Service column, select the item being refunded.
   • Enter the Quantity and Amount.
5. Save and Send (Optional)
   • Click Save and Close or Save and Send if you want to email the receipt to the customer.

Why Use a Refund Receipt?

• Accurate Records – Keeps financial reports up to date.
• Smooth Bank Reconciliation – Ensures proper cash flow tracking.
• Customer Transparency – Provides a clear record of the refund.

By following these steps, you can efficiently process refunds and keep your QuickBooks records organized.

FAQs:

How do I record a payment reversal in QuickBooks online?

How to Record a Chargeback in QuickBooks Online:

• Record as a Refund:
  1. Select the + New icon, then choose Refund Receipt or Give Refund.
  2. Choose the customer you want to refund from the Customer drop-down.
  3. Enter the refund details, including the refund receipt date, amount, and products/services involved.
  4. Select the original payment method from the Payment Method drop-down and the bank account from the Refund From drop-down.
  5. Save the transaction.
• Record as a Business Expense:
  1. Select the + New icon, then click Expense.
  2. Choose the bank account and the customer from the Payee drop-down.
  3. Delete the check number (you can write a note indicating it’s a chargeback).
  4. Enter the payment details, including the payment method, amount, and account charged.
  5. Save the transaction.

How do I book a customer or vendor refund in QuickBooks?

To Book a Customer Refund in QuickBooks:

1. Select + New and choose Refund Receipt.
2. Select the customer to refund from the drop-down.
3. Enter the details of the original sale and the amount to be refunded.
4. Choose the Payment Method and the Refund From account.
5. Enter the product or service being refunded and click Save.

To Book a Vendor Refund in QuickBooks:

1. Select + New and choose Credit Card Credit.
2. Select the appropriate bank or credit account.
3. Under Category Details, choose or create an income account called Refund.
4. Enter the required information and click Save and Close.

How to Match a Refund Transaction with a Bank Feed in QuickBooks

Matching refund transactions in QuickBooks ensures your records stay accurate and align with your bank statements. Here’s a simple step-by-step guide to help you do it efficiently.

Step 1: Open the Banking Section

1. Log in to QuickBooks Online or Desktop.
2. Navigate to Banking or Bank Feeds from the left menu.
3. Select the bank account where the refund was processed.

Step 2: Find the Refund Transaction

1. In the For Review tab, locate the refund transaction from the bank feed.
2. If QuickBooks suggests a match, review the details to confirm accuracy.

Step 3: Match or Record the Refund

• If the refund already exists in QuickBooks: Click Match to reconcile it.
• If the refund is missing: Click Add and categorize it as a refund under the correct expense or income category.

Step 4: Review and Reconcile

1. Go to the Categorized or Reviewed tab to verify the refund is matched correctly.
2. During your monthly reconciliation, double-check that all refunds appear as expected.

How to Categorize a Vendor Refund in QuickBooks

When you receive a refund from a vendor, it’s important to categorize it correctly in QuickBooks to keep your records accurate. Whether it’s a refund for a returned product or an overpayment, QuickBooks provides a simple way to track it properly.

Steps to Categorize a Vendor Refund in QuickBooks Online

1. Go to the Bank Transactions
   • Click on Transactions > Bank Transactions (or Banking).
   • Find the refund transaction under the appropriate bank account.
2. Categorize the Refund
   • Select the refund transaction.
   • Choose Categorize and set the Vendor Name.
   • Under Category, choose Accounts Payable if the refund offsets an unpaid bill.
   • If it’s a direct refund (not linked to a bill), choose the original expense account used for the purchase.
3. Save and Review
   • Click Save and Close to finalize the transaction.
   • Go to Reports > Profit and Loss to ensure the refund is recorded correctly.

Steps to Categorize a Vendor Refund in QuickBooks Desktop

1. Record the Refund as a Bank Deposit
   • Click Banking > Make Deposits.
   • Select the account where the refund was deposited.
2. Enter Vendor and Refund Details
   • In the Received From column, select the Vendor.
   • Under From Account, use the original Expense Account or Accounts Payable if offsetting a bill.
   • Enter the refund amount and payment method.
3. Save and Apply if Needed
   • Click Save & Close.
   • If applying the refund to an unpaid bill, go to Pay Bills, select the vendor, and apply the available credit.

Why Proper Categorization Matters

• Ensures accurate financial reports.
• Prevents duplicate expenses.
• Keeps tax records organized.

By following these steps, you can easily categorize vendor refunds in QuickBooks, keeping your accounting records clean and accurate.

QuickBooks Refund Policy for Customer Payments?

When processing refunds in QuickBooks, you can issue them through different methods depending on the original payment type. QuickBooks allows you to refund customers via check, credit card, or store credit, ensuring smooth transaction management.

How to Refund a Customer in QuickBooks

1. Refund via Credit Card
   • If the payment was made through a credit card, process the refund directly through QuickBooks Payments.
   • Go to Sales > Customers, find the transaction, and select Refund Receipt.
2. Refund via Check or Cash
   • If the customer paid via cash, check, or bank transfer, issue a refund check in QuickBooks.
   • Navigate to + New > Check, enter the customer’s details, and save the transaction.
3. Applying a Credit Memo
   • If the customer prefers to keep the amount as store credit, create a Credit Memo in QuickBooks.
   • This can be used for future purchases or adjustments.

Key Considerations

• Processing Time: Refunds typically take 7–10 business days, depending on the payment method.
• Refund Limits: Some transactions may have restrictions based on payment processors.
• Partial Refunds: You can issue a full or partial refund depending on the situation.

Disclaimer: The information outlined above for “How To Record A Refund in QuickBooks Online and Desktop – Learn the Process” 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.