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Refund your customer for a paid invoice in QuickBooks Online

by Intuit•1203• Updated a day 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.

An icon showing cash and a payment card To issue a refund directly in QuickBooks, check out QuickBooks Payments rates and apply.

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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.

Follow this link to complete the steps in product

Locate the paid invoice you want to refund.
Select More actions, then select Create a credit memo.
Make sure the Customer field is correct. (It should be pre-filled.)
Enter the Credit Memo Date.
The Product/Service, Amount, and Tax will be automatically added from the original transaction. Adjust them if necessary.
- 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.
Select Save and close.

Create the refund expense

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

Select + New.
Select Expense.
From the Payee ▼ dropdown, select the customer you are refunding.
From the Payment account dropdown, select the bank account the money is being refunded from.
In the Category column, select the Debtors account (Accounts Receivable).
In the Amount field, enter the total amount of the refund.
If you collect sales tax, select the appropriate Tax option.
Select Save.

Link the refund to the credit memo

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

Select + New.
Select Receive payment.
From the Customer ▼ dropdown, select the same customer.
Fill in the Payment method and Deposit to fields.
In the Outstanding Transaction section, select the checkbox for the Expense you created.
Make sure the balance is $0, as the credit memo and expense will cancel each other out.
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.

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.