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Refund your customer for a paid invoice in QuickBooks Online

by Intuit•222• Updated about 3 hours ago

If you have QuickBooks Payments, you can refund a customer who has already paid an invoice with a credit memo. Then, you create an expense to issue the refund, and link the two transactions. Use this method for a refund involving a lost package or the Accounts Receivable account.

If you want to refund individual items or services, create a refund receipt instead.

You can easily issue credit to your customers in QuickBooks Online. You might want to do this because you need to reduce a customer's invoice for some reason. Or you might want to give a customer credit because they are a good customer. Note that the difference between credit and a refund is a refund happens when you need to send money back to a customer. A credit is when you want to reduce what they owe you - either now or in the future. To give customers credit, you’ll create a credit memo. Let’s go over how to create a credit memo, send it to a customer, and then apply that credit to an invoice. To start, select New and Credit memo (beat) or Give credit depending on your view. Select the customer you want to give credit to. Then select the products and services you want to give them credit for. Then the amount of the credit you want to give them. You can also select + Add new and create a credit item that doesn't have a specific price. Any time you add it to a credit memo, you can fill in the amount you want to credit your customer's account. If you want to send a copy of the credit to your customer select save and send. Otherwise, you can select another save option so QuickBooks records the credit. We’ll select save and send for this option. You see the PDF version of the credit memo that your customer will receive here. If everything looks good select save and close and your credit memo is on its way. Now let’s go over how to apply a credit memo to an invoice. If your customer already has an open invoice with you then this happens automatically. To see this go to your customer list. Find your customer and the open invoice. Select it and you can see QuickBooks has applied the credit memo to the open invoice. What happened is QuickBooks automatically created this Payment transaction here to apply the credit memo to the oldest open invoice. However, if your customer has multiple open invoices and you want to apply this credit to a different one, just select the payment. Then select the invoice you want to apply it to and enter the amount. Make sure this matches the amount of the credit memo. Once everything looks good. Save...and then confirm. If your customer doesn’t have an open invoice then the credit will automatically be applied to their next invoice. Let’s take a look. Just create a credit memo for your customer. Then when you create a new invoice for your customer (beat) you will see that QuickBooks has applied the credit to your new invoice. That’s it. Now you can create credit memos for your own customers.

In this article, you'll learn how to:

What you’ll need

  • The original paid transaction (invoice).
  • The customer's preferred payment method.
  • The bank account you are refunding from.


Create a credit memo

First, create a credit memo to record the credit on the customer's account.

  1. Select + New or + Create.
  2. Select Credit memo.
  3. From the Customer â–Ľ dropdown, select the appropriate customer.
  4. Enter the Credit Memo Date, Product/Service, Amount, and Sales Tax.
    Note: If you are refunding an inventory item, QuickBooks adds it back to your inventory. If the item is defective or you don't want to add it back, you will need to make an inventory adjustment.
  5. Select Save and close.


Create the refund expense

Next, create an expense to record the money you are refunding to the customer.

  1. Select + New or + Create.
  2. Select Expense.
  3. From the Payee â–Ľ dropdown, select the customer you are refunding.
  4. From the Payment account â–Ľ dropdown, select the bank account the money is being refunded from.
  5. In the Category column, select the Accounts Receivable.
    Note: If this is your first time adding a payment to accounts receivable, you may have to select + Add new and add Accounts Receivable if you do not see it in the dropdown.
  6. In the Amount field, enter the total amount of the refund.
  7. In the Sales Tax field you'll need to select Out of Scope.
  8. Select Save.


Finally, link the credit memo and the expense to show the credit has been refunded.

  1. Select + New or + Create.
  2. Select Receive payment.
  3. From the Customer ▼ dropdown, select the same customer.
  4. Fill in the Payment method and Deposit To fields.
  5. In the Outstanding Transactions section, select the checkbox for the Expense you created if it is not already selected.
  6. In the Credits section, select the checkbox for the Credit Memo you created if it is not already selected.
  7. Make sure the balance is CA $0, as the credit memo and expense will cancel each other out.
  8. Select Save and close.


Results

After linking the transactions, your customer's account will show the credit memo as paid, and the refund expense will be recorded. Your accounts receivable and bank account balances will be correct.



Issue a supplier refund for a paid bill

  1. Select + New or + Create.
  2. Select Supplier credit.
  3. From the Supplier ▼  dropdown, select the appropriate supplier.
  4. Enter the Payment date, Amount, Sales Tax, and Category (This is the category, product, or service you’re getting credit for).
  5. Select Save and close.

Note: If the supplier has been overpaid, you do not need the supplier credit as you will already have an unapplied credit that acts as your supplier credit.

  1. Select + New or + Create.
  2. Select Bank deposit.
  3. From the Account ▼ dropdown, select the appropriate account.
  4. In the Add funds to this deposit section, enter the following information:
    • In the Received From field, select or enter the desired supplier.
    • In the Account field, select the Accounts Payable.
    • In the Amount field, enter the amount of the refund.
    • In the Sales Tax field, select Out of Scope.
    • Select Save and close.
  5. Next, Select + New or + Create.
  6. Select Cheque.
  7. From the Payee â–Ľ dropdown, select the appropriate Payee.
  8. Add Supplier Credit or Deposit from the drawer that appears on the right-hand side.
  9. From the Bill Payment page, select the checkbox for the Supplier Credit and Deposit you created.
  10. Balance should be CA $0 as they will cancel each other out.
  11. Select Save and close.


Issue a supplier refund on a credit card

  1. Select + New or + Create.
  2. Select Credit card credit.
  3. From the Payee â–Ľ dropdown, select the appropriate supplier.
  4. From the Bank/Credit account â–Ľ dropdown, select the credit card where you received the refund to.
  5. Enter the Payment Date, Category, Amount, and Sales Tax.
    Note: The category used here is the original expense account on the original bill.
  6. Select Save and close.


Next step

If you use online banking, go to Bank transactions to find and match the refund record when it appears in your bank feed.



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