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Record a customer refund or supplier refund in QuickBooks Online

SOLVEDby QuickBooksQuickBooks Online1248Updated 1 week ago

Learn how to refund a customer or supplier or record a customer or supplier refund in QuickBooks Online.

If you need to provide a refund to a customer or supplier or record a refund from a customer or a supplier, don't worry. We’ll show you how to record a refund based on various scenarios. This ensures your books are up-to-date. If you’re not sure, ask your accountant. Or, we can help you find an Accountant near you.

  1. Select + New and select Credit note.
  2. In the Customer field, select the appropriate customer.
  3. Enter the Credit Note Date, Amount, VAT, and Product/Service (This is the category, product, or service you’re getting a credit for).
  4. Select Save and close.

Note: If the customer has overpaid – you do not need the credit note as you will already have an unapplied credit that acts as your credit note.

  1. Select + New and select Expense.
  2. In the Payee field, select or enter the desired customer.
  3. In the Payment account field, select the bank the money is being refunded from.
  4. In the Category field, select the Debtors account (Accounts receivable).
  5. In the Amount field, enter the amount of the refund.
  6. In the VAT field, select No VAT (not inclusive/exclusive of tax).
  7. Select Save.
  8. Next, go to + New and select Receive payment.
  9. Add the Customer and choose the Payment method and Deposit to.
  10. Balance should be 0 as they will cancel each other out.
  11. Select Save and close.
  12. If you have Online Banking, go to Bookkeeping, select Transactions, then go to Bank transactions (Take me there) and match the record found.

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.

Here's a short video on how to match supplier refund to supplier credit:

Step 1: Enter a supplier credit

  1. Select + New and select Supplier credit.
  2. In the Supplier field, select the appropriate supplier.
  3. Enter the Payment date, Amount, and Category (This is the category, product, or service you’re getting a credit for).
  4. Select Save and close.

Step 2: Deposit the money you got from the refund

  1. Select + New and select Bank deposit.
  2. 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 Creditors account (Accounts payable).
    • In the Amount field, enter the amount of the refund.
    • In the VAT field, select No VAT (not inclusive/exclusive of tax).
    • Select Save and Close.
  3. Next, go to + New and select Cheque
  4. Add the Payee and select the Bank Account.
  5. From the Add to Cheque section, select Add for the deposit.
  6. Balance should be 0 as they will cancel each other out.
  7. Select Save and close.
  8. If you have Online Banking, go to Bookkeeping, select Transactions, then match the record found on the Bank transactions (Take me there) page.

Note: If your supplier refund comes through your automated bank feed, you don’t need to record it manually. Simply use the Add function to add the refund as a deposit, and categorise it to the Creditors (Accounts Payable) account.

Step 3: Use Pay Bills to connect the bank deposit to the supplier credit

Even though you aren’t paying a bill, this is the right thing to do. This last step is to keep your supplier expenses accurate.

  1. Select + New.
  2. Select Pay bills.
  3. Select the bank deposit you just created. You’ll see the amount of the supplier credit in the Credit Applied field. The Total payment should be £0.00.
  4. Select Save and close.

To track credits for your suppliers, you should consider entering bills in QuickBooks. This way, you can track your account balance and credits using Accounts Payable. Otherwise, you can enter a note to remind yourself about this credit in the future.

Here's how to pay outstanding bills using supplier credits.

Step 1: Enter the supplier credits

  1. Select + New.
  2. Select Supplier Credit.
  3. In the Supplier field, select the appropriate supplier name.
  4. Enter the Payment date, Amount, and Category details or Item details (usually, this is the category, product, or service you’re getting a credit for).
  5. Select Save and close.

Step 2: Pay the bill using the supplier credits

If you're not sure when to use Pay Bills and Write Cheques, see What is the difference between bills, cheques and expenses?

  1. Select + New.
  2. Select Expense or Cheque.
    Note: Both Expense and Cheque recognise and record the expense. When you use Cheque, the transaction adds to the list of cheques that you can print.
  3. In the Payee dropdown, select the supplier name.
  4. Leave the Ref/Cheque no, Payment date, Amount and Memo fields blank.
  5. From the Add to Expense or Add to Cheque section, select Add for the outstanding bill and the supplier credit.
  6. Select Save and close.

You can apply a supplier credit toward any open or future bill. When you’re ready to use the credit, here’s how to do it.

  1. Select + New.
  2. Select Pay bills.
  3. Select a bill for your supplier from the list. You'll see the available credit with this supplier in the Credit Applied field.
  4. Complete the rest of the fields like you normally would.
  5. Select Save and close.
  1. Select + New and select Credit card credit.
  2. Select the Supplier from the Payee dropdown.
  3. From the Bank/Credit account ▼ dropdown, select the credit card where you received the refund to.
  4. Select the Payment date the credit card payment was received.
  5. In the table, select the correct account the refund relates to (for example, expense account).
  6. Enter the Amount.
  7. Enter the VAT (if applicable).
  8. Select Save and close.
  9. If you have online Banking, go to Bookkeeping, select Transactions, then match the record found on the Bank transactions (Take me there) page.

Note: This refund process isn't the same as the standard refund process. Therefore, no Supplier credits/ deposits required.

You can use refund receipts if a customer asks for a refund for an item or service.

Note: To avoid a double refund, make sure you didn't enter a credit note yet.

  1. Select + New.
  2. Select Refund receipt.
  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 (or a sales receipt) to.
  5. Add all products or services the customer returned in the Product/Service column.
  6. Make sure to fill the Date, Qty, Rate, Amount, VAT, and other fields accordingly, then select Save and close.

You can record a refund to your customer using Cheque or Expense if:

  • They want to redeem their open credits (credit notes).
  • They made a prepayment for an order but cancelled it before receiving the goods or services.
  • They want you to reimburse an accidental overpayment.

Using Cheque or Expense to record the refund reduces your bank's balance and offsets the customer's open credit, overpayment or prepayment.

Step 1: Record the refund for your customer

  1. Select + New.
  2. Select Expense, or Cheque.
    Note: Both Expense and Cheque recognise and record expenses. When you use Cheque, the transaction adds to the list of cheques that you can print.
  3. Select the customer you want to refund from the Payee ▼ dropdown.
  4. From the Payment account ▼ dropdown, select the bank account where you deposited the overpayment to.
  5. In the first line of the Category column, select Debtors (Accounts receivable).
  6. Enter how much you want to refund in the Amount field.
  7. Fill out the other fields as you see fit, then select Save and close.
    Note: If your customer refund is reflected on your automated bank feed, you don’t need to record it manually. Simply use the Add function to add the refund as an expense and categorise it to the Debtors (Accounts receivable) account.

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

  1. Select + New.
  2. Select Receive payment.
  3. Select the same customer you used for the cheque or expense when recording the refund.
  4. Fill out the other fields as you see fit.
  5. Under the Outstanding Transactions section, select the checkbox for the Expense or Cheque you created when recording the refund.
  6. In the Credits section, select the Credit or Overpayment you want to link with the refund in Step 5.
    Note: Customer credits and overpayments may exist in different forms (such as credit notes, deposits or unapplied payments), if they are categorised against a debtor’s type of account – usually the one called Debtors (Accounts receivable). If you cannot see a deposit you entered to reflect a customer’s overpayment among the options in the Credits section of the screen, find this deposit first and ensure it’s categorised against the Debtors (Accounts receivable) account.
  7. Make sure the payment is equal to the open balance, then select Save and close. You have successfully linked the customer refund to a credit (overpayment). Any linked credit note will be marked as closed, and a deposit will be marked as paid.

Note: If your customer used a credit card on a purchase, you can refund a credit card payment on the sales receipt or invoice.

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