The basic steps to record a refund you received
To record a refund in QuickBooks Online, you create a credit memo if a customer returned something, or a bill credit if a vendor refunded you money. The method depends on whether the refund came from a sale you made or a purchase you paid for. QuickBooks treats these two directions differently because one reduces what you owe a customer and the other reduces what you owe a vendor.
The refund also needs to be tied to the original transaction — the invoice or bill it came from — so your records show the money going out and coming back in the same place. If you just record cash coming in without linking it to the original charge, your books will show you were paid twice.
Most refunds take two to five minutes to record once you have the original transaction number and the refund amount in front of you.
Key Takeaways
- A credit memo records money you refunded to a customer; a bill credit records money a vendor refunded to you.
- You must link the refund to the original invoice or bill so QuickBooks knows which transaction it belongs to.
- If the refund came as a check or bank transfer, you also need to record the deposit or payment in your bank register to match your actual bank statement.
- Refunds that reduce what you owe in taxes or insurance claims should be recorded in the same expense category as the original charge.
Recording a refund you gave to a customer
When a customer returns a product or you refund part of an invoice, you create a credit memo. Go to + New in the top left, select Credit Memo, and choose the customer name from the dropdown. QuickBooks will pull up their open invoices.
Select the invoice the refund is for, and QuickBooks will auto-fill the line items from that invoice. You can then reduce the quantity or amount on each line to match what was actually returned. For example, if they bought five items and returned two, change the quantity from 5 to 2. QuickBooks will calculate the credit amount automatically.
At the bottom of the credit memo, choose how the customer will receive the refund: as a check you write, as a credit toward a future purchase, or as a refund to their original payment method. If you are writing a check, QuickBooks will create a check for you to print. If the refund goes to their card or bank account, you will record that payment separately once it clears.
Click Save and Close. The credit memo is now in your system and reduces the customer's balance.
Recording a refund you received from a vendor
When a vendor refunds money for a purchase you returned or an overcharge, you create a bill credit. Go to + New, select Bill Credit, and choose the vendor name. QuickBooks will show their open bills.
Select the bill the refund is for. QuickBooks will pull the line items from that bill, and you reduce the quantities or amounts to match what was actually refunded. If you paid $500 for supplies and returned $150 worth, reduce the line items so the total credit is $150.
Choose whether the credit will reduce a future bill from this vendor, or whether you will receive the money back as a check or bank transfer. If the vendor is sending you money, note that in the memo field so you know to expect a deposit.
Click Save and Close. The bill credit now reduces what you owe this vendor, or sets up a credit for the next purchase.
Matching the refund to your actual bank deposit or payment
Recording the credit memo or bill credit in QuickBooks is only half the work. You also need to record the actual money moving in or out of your bank account, then match it to the refund you just recorded.
If you received a refund check from a vendor, deposit it like any other check: go to + New, select Deposit, and enter the check details. QuickBooks will show you the bill credit you created; select it so the deposit is linked to the right transaction. This tells QuickBooks that the bill credit has been paid.
If you wrote a check to a customer as a refund, QuickBooks will have created that check when you finished the credit memo. Go to Check in the + New menu, find the check QuickBooks created, and print it. Once the check clears your bank, QuickBooks will match it automatically during bank reconciliation.
If the refund went to a customer's card or bank account, record it as a bank transfer or payment from your account. Go to + New, select Check or Transfer, and enter the amount and date. Link it to the credit memo so the two are connected.
Recording tax refunds and insurance refunds
Tax refunds and insurance refunds work the same way as vendor refunds, but the category matters more because these refunds reduce your tax or insurance expenses for the year. When you record the bill credit, make sure it is tied to the original bill or expense in the same category.
For example, if you received a tax refund for overpaid quarterly taxes, create a bill credit and link it to the original bill where you recorded the tax payment. QuickBooks will then reduce your tax expense by the refund amount. The same applies to insurance refunds: link the credit to the original insurance bill so the refund reduces your insurance expense.
When you deposit the refund check, match it to the bill credit so QuickBooks knows the money has arrived in your account. This keeps your bank reconciliation clean and your expense reports accurate.
What to do if the refund does not match the original transaction
Sometimes a refund is for only part of an invoice, or covers multiple invoices at once. If the refund amount does not match any single transaction, you have two options.
The first is to create a partial credit memo or bill credit for the amount that applies to one transaction, then create another one for the remainder. This keeps each refund tied to the invoice it came from. The second is to create a credit memo or bill credit for the full amount, link it to the largest transaction, and add a note in the memo field explaining which other invoices it covers. This is faster but less precise.
If you are unsure which transaction the refund is for, check the vendor's or customer's email or the memo line on the check. Most refunds include a reference number or invoice number that tells you where to apply it.
Reconciling refunds during bank reconciliation
When you reconcile your bank account in QuickBooks, refunds you recorded should match the deposits or payments on your bank statement. If you recorded a credit memo and wrote a check, that check should appear in your bank statement on the date you wrote it. If you recorded a bill credit and received a check, that deposit should appear on the date it cleared.
Open your bank reconciliation by going to Accounting, then Reconcile. Find the refund check or deposit in the list and mark it as cleared. QuickBooks will match it to the credit memo or bill credit you created, and both will show as reconciled.
If a refund appears on your bank statement but you have not recorded it in QuickBooks yet, create the credit memo or bill credit first, then reconcile. If a refund you recorded does not appear on your bank statement, check the date — it may not have cleared yet, or the vendor may not have sent it.
Frequently Asked Questions
Do I have to link a refund to the original invoice, or can I just record it as income?
You should link it to the original transaction so your records show the money going out and coming back in the same place. If you record it separately, your books will show you were paid twice for the same thing, and your profit will be wrong. QuickBooks makes linking automatic when you use credit memos and bill credits.
What if I refunded a customer but they have not cashed the check yet?
Record the credit memo and the check right away. During bank reconciliation, mark the check as outstanding (not yet cleared). Once the customer cashes it and it appears on your bank statement, mark it as cleared. QuickBooks will then match everything up.
Can I record a refund if I do not remember which invoice it was for?
Yes, but it is better to find out first. Check the vendor's email, the memo line on the check, or your invoice records. If you truly cannot find it, create a bill credit without linking it to a specific invoice, and add a note in the memo field. This is less clean but will not break your books.
If a vendor refunds me for multiple invoices at once, do I create one credit memo or several?
You can do either. Creating one credit memo for each invoice keeps your records precise. Creating one credit memo for the total amount and noting which invoices it covers in the memo field is faster. Choose based on how detailed your records need to be.
What happens to a refund if the customer or vendor goes out of business?
The credit memo or bill credit stays in QuickBooks as a record of the transaction. If you never use a vendor credit because the vendor closed, you can write it off as a loss. If a customer credit goes unused, you can write it off as uncollectible income. Your accountant can help you handle these write-offs at year-end.