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BBLRbooksguy
July 16, 2025
Question

Need Clarity on Different Refund Methods

  • July 16, 2025
  • 1 reply
  • 31 views

Hi there,

 

Is it me or did QBO recently make changes to the refund process?  This article is what I used to reference, but it says its was updated 5 days ago and now I am confused about how/when to use the different refund methods:

https://quickbooks.intuit.com/learn-support/en-us/help-article/customer-refunds-credits/record-customer-refund-quickbooks-online/L5PbCkJk8_US_en_US?uid=mcuwjn50&_its=eF4ljkEOgzAMBP_ic5EgJDHhBz300g-gODFqJApSmvaC4O01cPPau95Z4Zci9GBijYE6qsYW20o7ihXVqCu2PrAlYzAauMGn-MJiz1PZGzTKOtTo9snPcVeDM8bqIabMoQyk6-Ak1tDYWRU0N-hVq5BJM3aE8s2XkhN9S1pm6FeIy9snmUBOmUfOmfOlwsvPM093IT07BCSHxxIPlKsOztWTxyOwiUiFD3sjjO32B69-RLk

The first option is "Refund your customer after their invoice has been paid" and the example it gives is for "a lost package."  The second option is "Refund your customer for an item or service" and the example it gives is if "an item or service doesn’t satisfy the customer."  I really don't understand the difference between these two scenarios and why they need to be recorded differently???  Can someone explain to me on an accounting level what is happening and why they are different?

 

And what if the scenario is a customer pre-pays for a job to be done, but then cancels that job later before any work was performed?  Is that the first or second option?  I feel like before the changes I understood which method to use, but now it's different and the article does a terrible job explaining which method to use and why.  Help and thanks!

1 reply

S
SheandLQuickBooks Team
QuickBooks Team
July 16, 2025

The primary difference between the two options is whether the refund involves Accounts Receivable (A/R), BBLRbooksguy.

 

The first process is used when an invoice is issued to the customer and they’ve paid it. Since the payment is recorded in A/R, you need to create a credit memo to adjust the A/R balance and reverse the payment associated with the invoice.

 

On the other hand, the second process is used when the customer paid directly at the time of purchase, or you processed a sales receipt instead of an invoice. Since the payment isn’t recorded in A/R, the refund is handled using a refund receipt to adjust revenue, inventory, or cash accounts directly.

 

As for the scenario you provided, the correct process depends on how the prepayment was recorded:

 

  • If the payment was tied to an invoice, use the first option and issue a credit memo to adjust the A/R balance and reverse the payment.
  • If the payment was made upfront or without an invoice, use the second option and issue a refund receipt to adjust revenue without affecting the A/R balance.

If you have further questions or need clarification, feel free to comment below.

S
SheandLQuickBooks Team
QuickBooks Team
July 22, 2025

Hello there, BBLRbooksguy. I’d like to provide a clear explanation of the refunding processes in QuickBooks Online.

 

If you want to use the refund as payment for future invoices, record it as a credit memo. If you're returning the money to the customer right away, record it as a refund receipt.

 

For refunds related to prepayments or advance deposits, record them as a check or an expense, using the same category that was originally applied to the transactions. This will effectively offset the original entry.

 

Feel free to comment down below if you have other questions about this.

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