How to issue a refund in QuickBooks

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It’s never fun to give money you’ve already entered into QuickBooks back to a customer, but refunds are a necessary part of doing business.

In fact, 8.89% of products bought in-store are returned. That number increases to 30% for online purchases.

But returns aren’t the only instance where you’ll need to refund your customers.

Suffice to say, in order to stay legally compliant, maintain accurate records, and keep your customers happy, you need to know how to issue a refund in QuickBooks.

In this article, you’ll learn:

When you need to enter refunds.
How to issue a refund in QuickBooks.
How to categorize a refund in QuickBooks to locate it easily.

Let’s get started!

When to enter a refund in QuickBooks

Here are some instances where you’ll want to know how to issue a refund in QuickBooks:

Product returns: This is when a customer returns a product they’ve purchased due to defects, dissatisfaction, or any other reason. For example, they might be eligible for a refund if a product fails within its warranty period.
Cancellations: If a customer cancels a service, event, or subscription that they’ve paid for in advance, they are likely entitled to a partial or full refund.
Billing errors: Mistakes happen when handling bills. You might accidentally overcharge a customer or have an issue with your payment portal. No matter the cause, knowing how to issue a refund in QuickBooks lets you quickly correct any errors.
Overpayments: Sometimes, customers pay more than what’s due, either by mistake or misunderstanding. You might have to issue a refund that returns the amount overpaid to your customer.
Duplicate payments: If a customer accidentally pays an invoice twice, you must issue a refund for the duplicate payment.
Legal obligations: Depending on your local laws and regulations, you may need to know how to issue a refund in QuickBooks under certain circumstances.
Credit: If your customer has credit with your business, you could refund the credited amount instead of leaving the balance for future transactions. Common reasons to do this include customer requests, lack of future transactions, and accounting clarity.

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How to issue a refund in QuickBooks: Step-by-step video tutorial

This step-by-step video tutorial shows you how to issue a refund in QuickBooks.

Understanding how to issue and categorize a refund in your accounting software means that you can make any customer wrong right. Watch to improve your customer satisfaction and ensure accurate financial records.

How to categorize a refund in QuickBooks

Here’s how to categorize a refund in QuickBooks:

Go to “Bookkeeping” on the left and select “Transactions”. You’ll see a box for each bank and credit card you’ve connected.
Select any of the boxes to show the downloaded transactions for that account. Here is where you’ll see all the transactions that QuickBooks has downloaded from your bank.
Either “Confirm” or “Review” each of these transactions. When you see “Confirm”, it means that QuickBooks is suggesting a category for you. When you see “Review”, you’ll need to tell QuickBooks what category the transaction should be in. Select the transaction to see more information.
From the “Category” drop-down menu, select “Refunds Allowances” and make any changes or add any missing details.
Select “Confirm” when finished.

How to find a refund in QuickBooks

Now that you know how to issue a refund in QuickBooks, here’s how to find previous refund receipts:

Go to the “Customers” menu and select “Customer Center”.
Find and open your refunded customer’s profile.
Find and open the customer’s “Credit Card Refund” or “Credit Memo” page.
In the new window that opens, select “View Refund receipt”.

How to refund a customer’s overpayment or credit

Sometimes, you’ll need to know how to issue a refund in QuickBooks or apply customer credit for an overpayment.

How to refund a customer for an overpayment

Step 1: Record the refund for your customer

Open “Expense” or “Check”, depending on what you’re refunding.
In the “Payee” drop-down menu, select the customer you want to refund.
From the “Payment account” drop-down menu, select the bank account where you deposited the overpayment.
In the “Category” column, click “Accounts Receivable”.
Enter how much you want to refund in the “Amount field”.
Fill in any other relevant details and click “Save and close”.

Step 2: Link the refund to your customer’s overpayment

Open “Receive Payment” in the “Customers” menu.
Select the same customer you used for the check or expense in Step 1.
In the “Outstanding Transaction” section, click the checkbox next to the expense or check.
Ensure the payment and open balance are equal, then select “Save and close”.

How to apply credit to an invoice

Under “+ New”, select “Receive payment”.
Select the relevant customer, credit, and invoice.
Select a separate, pending invoice and enter the amount overpaid in the “Payment” column to apply it to the upcoming invoice.
Click “Save and close”.

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QuickBooks refund FAQs

How can I close an invoice and refund a deposit in QuickBooks?

To close an invoice and refund a deposit in QuickBooks Online:

Create a credit memo.
Create a check to refund the deposit.
Record a payment.

If you use QuickBooks Desktop, you’ll have to sign up for a QuickBooks Payments account. To refund a deposit you processed using QuickBooks Payments:

Create a credit memo.
Refund the customer’s credit card.
Apply the credit memo.

If I enter a credit card refund in Quickbooks, will the difference show in my credit balance?

Yes, the difference will show in your credit balance if you enter a credit card refund in QuickBooks. It’s recorded as a negative amount, so the balance of your credit card account will reduce by the refund amount.