Matching a refund cheque expense with the credit memo

Hi emb2,

Being able to keep track of your information quickly is a key factor when running a company and QuickBooks Online helps with making these entries simple. I can help go over how to enter a refund to your customers.

Refunds are an unavoidable part of the business and making sure they are tracked properly is crucial. When entering a refund a credit memo is not the way to go as these are used for holding a credit for a future purchase or job. If you made a credit memo instead and wish to delete it you can do so by opening the Credit Memo, selecting More and then Delete. When processing a refund you just need to follow these steps:

1. Select + New.
2. Select Refund receipt or Give refund.
3. Select the Customer ▼ dropdown, then select the customer you want to refund.
4. Select the Refund From ▼ dropdown, then select the bank you deposited the payment for the invoice to.
5. Add all products or services the customer returned in the PRODUCT/SERVICE column.
6. Make sure to fill the service date, quantity, rate, amount, tax, and other fields accordingly, then select Save and close.

Once the refund is made it'll show against the proper accounts and allow you to keep your books accurate. Should you wish to do this another way I recommend reaching out to your accountant as they are trained in how to make these entries and having them go to the correct accounts. If you don't have an accountant don't worry, we got this. You can go to My Accountant>Find a pro to help to find an accountant in your area.

If you've any questions let us know by reaching back out and we'll be happy to help!

Thanks very much! Everything else I looked at said don't use a simple refund receipt and to use a credit memo!

Hi again emb2,

The answer to this is very much dependent on the situation. For example if the invoice was cancelled before the inventory was sent or services used or if the customer wanted a refund due to the inventory being damaged. That is why I recommend reaching out to an accountant for assistance on how to deal with the invoice. This way you can make sure that your accounts all stay correct and your inventory isn't adversely affected. If you don't have an accountant you can reach out to one using the steps I provided earlier.

Have a great day!

Hello @emb2 ,

There should be no HST on your refund cheque.  The HST is handled in the credit memo step that you have already taken.  Your refund cheque should be for the total, including HST (but not as a separate line on the cheque!), and the entire amount posted to Accounts Receivable account, then tab over to the name and insert the name of the customer receiving the refund in the name field.

The trail of accounts affected would be as follows using $500 as sale amount, and 13% HST rate:

1.  When you sold the goods to your client:

CR   Income Account                ($500.00)

CR   HST Account                     ($  65.00)

DR   Accounts Receivable         $565.00

2.  When the customer paid you for that invoice:

CR  Accounts Receivable         ($565.00)

DR  Bank Account                     $565.00

3.  When the customer requests a refund for a return, etc.:

Step 1: (Issue credit memo for exact amount of original invoice)

DR  Income Account                $500.00

DR  HST Account                    $  65.00 

CR  Accounts Receivable       ($565.00)

Step 2: (Write refund cheque)

DR  Accounts Receivable       $565.00    (tabbing over to enter customer name in the Name field)

CR  Bank Account                 ($565.00)

All affected accounts are now balanced.  I'll be happy to help if you have any problems.

Good luck!

Hi @Rochelley !

This is great, thanks so much for your reply, I thought this was the case but just needed it clarifying. Thank you for explaining. So you are in agreement that this would be the correct way to record this scenario?

Thanks again!