How to Set Up a Refund Account in Quickbooks

In earlier articles within this series we looked at the workflows for 'sales' using Sales Receipts as our first example in which we also introduced undeposited funds. We also covered the workflows for Invoicing & Payments, and Estimates & Progress Invoicing. In each of those cases our illustrated workflows ended each with a Bank Deposit.

In last week's article we stepped away from the 'sales cycle' to make certain that we all had the proper workflow for handling Bank Deposits and Undeposited Funds correct in an attempt to prevent the all too common problems associated with those procedures. This week we want to return to another aspect of the sales cycle and look at Credit Memos and Refunds because sooner or later a customer or client is going to either return merchandise or be due a refund for services rendered.

Credit Memos

Credit Memos are used when you are refunding a Customer, but maintaining the difference as a store credit to be applied to a future purchase. To properly record a Credit Memo, select +New > Credit Memo.

Fill in the Product/Service. Be sure this item exactly matches the Product or Service you had originally invoiced, so that in your reports your sales totals are accurate.

This Credit will now be available the next time you Receive Payment on an Invoice.

Applying Credits

Outstanding credits are applied when using Receive Payment to close an Invoice. They cannot be used with Sales Receipts.

If a credit is available, you will see it below the Outstanding Transactions. In the Amount Received box, enter the amount of the actual money being paid (in this case, $120 of the $160 Invoice).

Check the Credit in the second grid marked "Credits." In this example, the $40 credit on file is applied, for a total of $160, matching the amount of the original Invoice.

Customer Refunds

How a company processes a Refund depends on what is being refunded. If a refund is for an item or service, it's pretty straightforward. If refunding a Credit your customer has on account because it's not going to get used, there are extra steps.

When refunding a sale or service select + New > Refund Receipt (interestingly, this option is not on the green New Transaction button inside the Customer Center).

Choose your Customer.

If you will be refunding to a credit card, select the card type in the Payment Method. If you're using QuickBooks Payments Merchant Services, you can fill in their credit card details and refund directly to their card.

In Refund From, choose your account where your funds will be drawn from.

If you're paying by Check, fill in the Check no. or click Print  Later. If your ran an ACH payment through QB Payments, you'll need to refund them with a manual check.

Be sure to choose the same Product/Service that was originally charged. Reverse the income that was made from the original sale. A major PEBCAK is to use a separate Expense account like "Refunds."

Refunding a Customer Credit

When your customer has a Credit Memo causing a negative balance and you are returning the money, make a Refund Receipt and then add these two steps:

1. Create an Invoice for that customer with the exact same details as the Refund Receipt, including the same date, product/service, and amount of the refund. Click Save to save the invoice but stay in the window.
2. Up at the top right, click Receive Payment.  You will see an Unapplied Payment at the bottom under Credits. The balance will now be $0 for the payment.  This makes the customer's Accounts Receivable $0 as well.

Lesson Wrap-up

It's essential that QuickBooks Online users understand the difference between Credit Memos and Refunds. Turning Credit Memos into Refunds takes time that could be used for better purposes.

If you found this workflow something new or different then you might find my QBO Knowledge Base helpful, just head over to my website for plenty of content.  By the way be certain to use code IA10 for 10% off.

You also will notice that I have an upcoming webinar in conjunction with Insightful Accountant titled, QuickBooks® Online Banking in which I will show you how to add a bank account to QuickBooks, import and match transactions, categorize your expenses, attach receipts and more. That webinar is scheduled for April 22 at 12:00 p.m. ET and you can Register Here.

How to Set Up a Refund Account in Quickbooks

Source: https://www.intuitiveaccountant.com/accounting-tech/general-ledger/quickbooks-online%C2%AE-basics-credit-memos-refunds-series-2-less/

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