Refunded Customer Overpayment but P&L still shows unapplied cash payment income

Nice to have you here in the Community, @KKPM.

Based on the details you provided about your customer's overpayment, I suggest creating a vendor check and making the account in the line items your accounts receivable account. This will take the overpayment out of credits and show you gave it back to your customer. The steps below will show you how:

1. Go to the + New menu and pick Expense (Add expense or Check will also work).
2. In the Payee drop-down, select the customer you want to refund.
3. From the Payment drop-down, choose the bank account where the overpayment is deposited.
4. On the first line of the Category column, pick Accounts Receivable.
5. Enter the refund amount ($500 in your case) in the Amount field.
6. Fill out the other fields as needed, then hit Save and close.

Now your customer's overpayment is cleared, and your account will reflect as balanced on your Profit and Loss report. You can check out this article on recording a customer refund for more information.

Feel free to hit the reply button if you have any other questions. I'm always here to lend a helping hand.

Thank you for trying. This doesn't work because it takes an additional $500 out of my checking account register.  The $500 was already taken out when I refunded the credit card payment to the customer.  Your solution DOES get the balance out of unapplied cash payment income, but then my checking account register will not reconcile.  I'm pretty much just moving around a $500 problem from one place to another.  I do not understand why QB online can't just do a darn refund receipt right off of the original invoice.  Just like one would be doing if we were recording this transaction on paper.  Would have taken 3 seconds instead of the hours I have no invested into this.

Thanks for coming back for more support, @KKPM. I appreciate you for voicing out your concern. Let me chime in to clear things up for you.  

Creating a Refund Receipt won't affect the customer's balance (accounts receivable), only the bank balance. Also, this transaction can't be paired with the overpayment. 

Instead, you write a check or expense to record the refund as suggested by my peer @Anna S. Then, pair it to the overpayment to reduce your bank's balance, and offsets the overpayment at the same time.

Before we proceed, consider deleting the refund receipt you've created first. Then, follow these step-by-step guide below:

1. Go to the  + New menu, then select Check under Vendors column.
2. In the Category details section, enter/choose the following:

• Accounts - Accounts Receivable.
• Amount - Overpayment amount.
• Customer - Customer's name.

     3. Click Save and close.

Next, let's link it to the customer's credit/overpayment. Here's how:

1. Go back to the + New menu, then select Receive Payment under Customers column.
2. Pick the customer's name in the Customer drop-down list.
3. Choose the check/expense you've created in the Outstanding Transactions section.
4. Select the Unapplied Payment under the Credits section.
5. Ensure that the Amount Received is zero, then hit Save and close. 

That's how you do the trick. Pretty sure it won't show up as unapplied cash payment on your P&L report anymore. 

I'm also adding this article for your future reference: Handle a customer credit or overpayment in QuickBooks Online. It helps you learn about different ways and tips on how to manage instances when customer overpays you. 

Feel free to post again if there's something you'd like to ask. I'm always around to help. 

I have the same problem and followed all your instructions to a T.   However, qb does not allow me to do it the way you suggest.  First I get an error:  

Hello there, @blondi.

I'd love to help you achieve your goal, but can you please provide additional information about your main concern? Also, may I know what type of transaction are you trying to create?

It would also be great if you could include screenshots of the page where the error message occurs so I could have a better picture.

I'd appreciate any additional details you can provide. I’m looking forward to your reply.

@Kevin_C , thanks for your reply.

A Client overpaid and I already paid the money back to the client on Friday.  Now in QBO, the client has a credit amount on their balance although I paid back the money.  So what I tried to do is to follow the exact instructions given on the QB help page: https://quickbooks.intuit.com/learn-support/en-us/help-article/customer-refunds-credits/record-custo...

going into the third tab: Refund a customer's overpayment or credit.

Step1.5: select accounts receivable.  When I do that and leave the VAT column blank, I get error message:

Thanks for getting back to this thread, @blondi. Allow me to clarify things for you.

When you refund a customer's overpayment or credit, there's no need to add the tax to the affected Accounts Receivable. Instead, enter the Amount, including the taxes. By doing so, this will help get past the error message and successfully record the customer's refund.

For more insights, please see this article: Record a customer refund in QuickBooks Online. 

In addition, I'll be sharing this link you can utilize in the future to void or refund payments you process through QuickBooks Online: Void or refund customer payments.

If you have follow-up questions, don't hesitate to comment below. I'm always around to help. Keep safe!

@Rubielyn_J thanks for the input.  After I tried it again almost 10 times over and over, I found a drop down button above the area where you add the category details with 3 options.  When I chose the last option, "out of scope of tax", it worked.  Simply using the amount that already includes VAT does not work, you have to also chose the drop down menu item.  Please rectify the article "record a customer refund in Quickbooks online".  It will help a lot of people down the road that will be left very frustrated.

Good Morning,

This same subject is coming up in my Enterprise Desktop we have switched to.  We do rental cars and take credit card deposits that are refunded upon return of the car.  ALL of the payment are showing up as unapplied payment on my AR even though the payment has been refunded.  The money shows refunded, but is still sitting in unapplied payments.  I tried creating a an invoice and sales receipt, but it will not attached the payment since it is not there, it's been refunded.  I have thousands of dollars of unapplied payments that is showing as income that I have to pay taxes on!  It is a big issue.  Please help!! 

You can post the refund check to Accounts Receivable and link it to the unapplied payment using Receive Payments, @Anderson2184. Let me clarify this for you.

First of all, note that unapplied payment income may show up on your report if a customer made a prepayment and you recorded the payment before creating the sales form, or if you entered payments without matching them to sales forms. To address this situation, we'll have to open the refund check you've created and ensure it's posted to Accounts Receivable category. Then, link the transaction to the unapplied payments using the Receive Payments function. I'll show you how:

1. Go to the Lists menu.
2. Choose Chart of Accounts.
3. Select the appropriate register and open the refund check.
4. Select Accounts Receivable from the Accounts column in the Expenses tab.
5. Pick a customer's name in the Customer: Job column.
6. Hit Save & Close.

If done, you can now link the unapplied payment. Here's how:
 

1. Navigate to Customers and tap Receive payments.
2. Pick the customer in the Received from.
3. Then check the unapplied payment and tick Apply Credits.

On the other hand, check out this article to have a guide in understanding more about undertaking payments in QBDT: Take and process payments in QuickBooks Desktop.

I'm always around and ready to help you if you need further assistance or have questions about managing customer refunds in QuickBooks. Leave a comment below to notify me. Have a good one.