Recording a refund in QuickBooks depends on what you're refunding and who you're refunding it to
If you're refunding a customer, you'll create a credit memo tied to the original invoice, then record the payment back to them. If you're refunding a vendor or getting money back from a supplier, you'll record a bill credit or a check received. If you're refunding an employee, you'll use a check or direct deposit tied to the original expense report. The steps differ because QuickBooks tracks money flowing out to customers differently than money flowing in from vendors or money moving between employee accounts.
The method also depends on whether you're using QuickBooks Online or QuickBooks Desktop — the buttons and menu paths are different, though the logic is the same. This guide covers both, with the Online version first since that's what most small businesses use now.
Key Takeaways
- Customer refunds require a credit memo linked to the original invoice, followed by a refund check or bank transfer to close it out.
- Vendor refunds are recorded as bill credits or as a check you receive, depending on whether the vendor issued a credit or you're requesting one back.
- Employee refunds for overpaid expenses go through a check or direct deposit tied to the expense report, not a general payment.
- QuickBooks Online and Desktop use different menu paths, so confirm which version you're using before you start.
- The refund must be tied to the original transaction so your records show what money went out and why it came back.
How to refund a customer in QuickBooks Online
Start by opening the original invoice you're refunding. Click the + New button at the top left, then select Credit Memo. QuickBooks will ask you to choose the customer — select the one you're refunding. The credit memo form will open with the customer's name and address already filled in.
In the line items section, enter the items or services you're crediting back. You can copy the line items from the original invoice if the entire invoice is being refunded, or enter only the items being refunded if it's a partial refund. Make sure the amounts match what you're actually refunding. Once the credit memo is complete, click Save and Close.
Now you have a credit memo, but the customer hasn't received their money yet. To actually refund them, click the + New button again and select Check (if paying by check) or Expense (if paying by bank transfer). In the Payee field, enter the customer's name. In the Account field, select the bank account the refund is coming from. In the Category field, select Accounts Receivable — this ties the refund back to the credit memo you just created. Enter the refund amount and save. The credit memo and the refund check are now linked in your records.
How to refund a customer in QuickBooks Desktop
Open the customer's invoice by going to Customers menu, then Create Invoices, and find the invoice you're refunding. Once it's open, go to Edit menu and select New Credit Memo/Refund. QuickBooks will create a credit memo tied to that invoice automatically.
Fill in the line items you're crediting back — the same items that appeared on the original invoice, or only the ones being refunded if it's partial. Save the credit memo. Then go to File menu, select Print Forms, and choose Refund Check. QuickBooks will walk you through printing a check to the customer, and it will automatically link that check to the credit memo you created.
If you're refunding by bank transfer instead of check, go to Banking menu, select Write Checks, and create a check to the customer for the refund amount. In the Account column, select Accounts Receivable so the refund ties back to the credit memo.
How to record a refund from a vendor in QuickBooks Online
If a vendor is sending you a refund — for example, you returned supplies or were overcharged — you need to record it as a bill credit or as money received. Start by going to + New and selecting Bill. Enter the vendor name and the date you received the refund. In the Amount Due field, enter the refund amount as a negative number (for example, -$150). In the line items, enter the account or item the refund is for, using a negative amount there too.
Click Save and Close. Now the vendor credit is recorded. If the vendor actually sent you a check or bank transfer, you'll also need to record that money hitting your bank account. Go to + New, select Bank Deposit, and add the refund check or transfer to your deposit. QuickBooks will match it to the bill credit you just created if you link them correctly.
Alternatively, if the vendor issued a formal credit memo, you can record it as a bill credit by going to + New, selecting Bill, entering a negative amount, and marking it as a credit. This reduces what you owe the vendor rather than putting cash in your bank account.
How to record a refund from a vendor in QuickBooks Desktop
Go to Vendors menu and select Enter Bills. Choose the vendor and enter the date of the refund. In the Amount Due field, enter the refund as a negative number. In the line items section, select the account the refund applies to and enter the negative amount there as well. Save the bill.
If the vendor sent a physical check, go to Banking menu, select Deposit, and add the check to your bank deposit. QuickBooks will let you link it to the bill credit you created. If it was a bank transfer, go to Banking menu, select Write Checks, and record the transfer as money received into your account, then link it to the vendor bill credit.
How to refund an employee for overpaid expenses in QuickBooks Online
If an employee submitted an expense report and you overpaid them, or they need a refund for a personal expense they covered, go to + New and select Check. In the Payee field, enter the employee's name. In the Account field, select the bank account the refund is coming from. In the line items section, select Employee Reimbursement Expense or the account you use to track employee advances, and enter the refund amount.
Add a note in the memo field explaining what the refund is for — for example, "Refund for overpaid mileage reimbursement, expense report 2024-03-15". Save the check. If you use direct deposit, you can also create a direct deposit entry instead of a check by going to + New and selecting Expense, then choosing the employee's bank account as the payee.
How to refund an employee in QuickBooks Desktop
Go to Banking menu and select Write Checks. In the Pay to the Order of field, enter the employee's name. In the Account column, select the expense account you use for employee reimbursements or advances. Enter the refund amount and add a note explaining what it's for. Save and print the check, or if your company uses direct deposit, record it as a direct deposit transfer instead.
If the employee was overpaid on a paycheck, you may want to deduct the refund from their next paycheck instead of writing a separate check. To do that, go to Employees menu, select Payroll, and open the next paycheck. Add a deduction line item for the overpayment amount and save. This keeps the refund tied to payroll rather than creating a separate transaction.
What to do if the refund is only partial
A partial refund means you're only refunding part of an invoice or bill, not the whole thing. In QuickBooks Online, create a credit memo but only include the line items or amounts being refunded. The original invoice stays in your records with the full amount, and the credit memo reduces what the customer owes by the partial amount. When you record the refund check, link it to the credit memo, not the original invoice.
In QuickBooks Desktop, the process is the same — create a credit memo with only the items being refunded, then write a check for that partial amount. QuickBooks will show the original invoice, the credit memo reducing it, and the refund check, so your records show exactly what happened.
If a customer or vendor disputes the partial refund amount, you'll have a clear record of what was refunded and why, because the credit memo and check are both tied to the original transaction.
Frequently Asked Questions
Can I refund a customer without creating a credit memo first?
Technically you can write a check to a customer without a credit memo, but you shouldn't. The credit memo ties the refund to the original invoice, so your records show why money went out. Without it, QuickBooks will record the check but won't connect it to the sale, making your accounts receivable report inaccurate.
What if I refund a customer but they never cash the check?
The refund check will sit in your bank account as uncashed. After 90 days or so, you may want to void the check in QuickBooks and re-issue it, or contact the customer to confirm their address. To void it, open the check in QuickBooks, click Edit, and select Void. The credit memo will remain, but the check will no longer affect your bank balance.
Do I need to record a refund if the customer is using a credit toward a future purchase instead?
No. If the customer is applying the credit to a future invoice instead of receiving cash back, you only need the credit memo. Don't create a refund check. When they place a new order, you'll apply the credit memo to that invoice, reducing what they owe. This keeps the money in your business and simplifies your records.
How do I know if a refund was actually deposited or sent?
Check your bank statement. If you wrote a check, look for it in the cleared checks section. If you did a bank transfer, look for it in the deposits or transfers section. Once you see it on the bank statement, go back to QuickBooks and reconcile that transaction so it's marked as cleared. This confirms the refund actually left your account.
Can I refund part of a payment if the customer overpaid their invoice?
Yes. Create a credit memo for the overpayment amount, then write a refund check for that amount. The credit memo reduces what they owe, and the check returns the overpayment to them. Both transactions tie back to the original invoice, so your records show the full story of what was paid and what was refunded.