How do I categorize a refund made to a client? Keeping in mind that it is not an expense, could it be categorized as an Income "Sales" as a negative amount?

Recording and categorizing a refund is easy in QuickBooks Online (QBO), and I'm here to show you how, @idaza-kaptivaspo.

When you refund a customer, it's an expense of your business. This reduces your total sales, bank's balance and offsets the customer's open credit, overpayment or prepayment.

You can use Refund receipts if a customer asks a refund for an item or service. Make sure you didn't enter a credit note yet to avoid a double refund. To do this, here's how:

1. Go to the+ New button.
2. Select Refund receipt or Give refund.
3. Choose the Customer dropdown, then select the client you want to refund.
4. Select the bank you deposited the payment for the invoice to in the Refund From dropdown.
5. Add all products or services the customer returned in the PRODUCT/SERVICE column.
6. Make sure to fill the service date, quantity, rate, amount, tax, and other fields accordingly, then select Save and close. 

On the other hand, when you refund a customer's overpayment or credit, record it using a Check or Expense. For the step-by-step guide, you can refer to this article: Record a customer refund in QuickBooks Online.

Also, categorizing your transactions will ensure that they match your real-life bank statements. With this, it's important to reconcile them every month. This way, you can monitor the growth of your business and detect any possible errors accordingly. For the detailed steps, you can refer to this article: Reconcile an account in QuickBooks Online.

Let me know in the comments if you have other concerns about categorizing a refund made to a client in QBO. I'm always around to help. Take care, and I wish you continued success, @idaza-kaptivaspo.

And once the refund has already been made and appears in the transactions to review as a negative number. Which category inside the expenses categories is the most appropiate to use?

Thanks for returning to this conversation, @idaza-kaptivaspo. I'm here to further guide you in the right direction on how to categorize your refund transactions.

Once the refund transactions show on the For Review tab, you can use the find match feature and look for the sales receipt.

Also, to give you information about the expense account you can use, feel free to visit this article: Learn about the chart of accounts in QuickBooks. Simply click the See which accounts QuickBooks sets up for you dropdown to check them.

You can also generate a handy copy of your reconciliations to have a reference guide in the future. To have one, check out this article for the detailed steps: How do I view, print, or export a reconciliation report?. You can either print or export it and save it on your desktop folder. 

Should you have any other concerns about categorizing refund transactions, you can always post here in the Community. I'm always here to listen and ensure your needs are taken care of.

Did you ever get a direct answer to this question? I am trying to learn the same thing and these articles don't explain it to me well. 

Thanks

I'm also wondering this. To be more clear, I have imported my PayPal transactions into Quickbooks Online and I'm just going through and selecting the correct categories for the transactions, but I'm not sure which category to choose for the transactions which show a refund that was given.

I am wondering the same thing. What did you end up doing? thank you

Okay, as a full-charge bookkeeper, I had to go back to basics and look this up myself in my Accounting books.  I have an account "Sales Returns & Allowances".  This is actually going to be an contra-income account as you want to offset your particular sales income with any returns for that sale.  For example, if I sold "Tractor Sales" vs. "ATV Sales", but got a returned ATV, that transaction would be under "ATV Returns & Allowances" vs "Tractor Returns & Allowances".  This will help you track your returns.  Returns & Allowances are negative (opposite of the income account or contra account) in Accounting.  I go one step further and also have a Discount Allowance for my particular business.  As my old Accounting book puts it, "Because sales discounts are reduce revenues from sales, they are considered a contra account and deducted from gross sales in the income statement."

Additionally, if you have a CPA doing your taxes at the end of the year, and you have expensed that in "Returns Expense", I'm sure they will know how to add that into your corporate/individual tax filings.

Additionally, the contra-income and expense accounts both show up on your profit & loss statement (P&L) regardless.

Are Returns and Allowances classified as Other Current Liabilities or something else?

Sorry if this posts twice, had to jump through membership questions.

How do you handle the "Sales Returns and Allowances"? Are they listed as a current liability or as something else?

It's a contra-income account. So it should be income > returns/discounts. That's the configuration of this account in QBO.