Issuing Credit Memos and Refunds in QuickBooks

June 11, 2019 by in category Accounting, QuickBooks with
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Credit Memos

A credit memo is just what it sounds like. A customer returns an item for which they’ve already paid, and you have to credit him or her for its cost. This is the more complicated of the two and requires more bookkeeping, since you’re tracking the sale, its payment, and the return item. You can deal with the amount of the credit by:
  • Retaining the funds in the customer account.
  • Issuing a refund.
  • Applying it to the next open invoice.

When you issue a credit memo to a customer, you have three options for returning the money they paid.
 
To create a credit memo, click  Refunds & Credits on QuickBooks’ home page or open the  Customers menu and select  Create Credit Memos/Refunds. The  Credit Memo window opens. Select the correct  Customer:Job. In the line item section of the form, choose the merchandise returned in the  Item column and enter a quantity. Repeat the process if more than one item was returned, then click  Save & Close. The  Available Credit window, pictured above, will open. Click the button in front of the option you want.
 
Select the first option if that’s what you want and click  OK. The window will close, and the customer will have had that credit amount applied to his or her own account. You can see this in the  Customer Center if you click on  Customers in the navigation toolbar (or  Customers | Customer Center). You can then either click on the  Customers & Jobs tab and scroll down until you can highlight your customer’s record or click on  Transactions | Credit Memos.
 
 

Click on Give a Refund to open the Issue a Refund window. Everything should be filled in here except for the payment method. If you select Cash from the Issue this refund via drop-down list and then pick the correct account from the list that opens, the refund amount will be subtracted from the account. Select Check and then the Account, and check the box in front of To be printed. That refund will be in the list the next time you open the File menu, then Print Forms | Checks. Choose a credit card and check the box in front of Process credit card refund when saving box to issue a credit card refund automatically.

The Issue a Refund windowIf there is an open invoice, the Apply Credit to Invoices window will open, containing a list of unpaid bills. If there isn’t already a checkmark in front of the invoice you want to apply it too, click in the first column to create one. QuickBooks will tell you how much credit was applied and whether any remains. When you’ve checked the screen for accuracy, click Done.

Dealing with Overpayments 

Let’s say a customer is catching up on multiple outstanding invoices and he or she sends you a check for the total but overpays you. Open the Receive Payments window by going to Customers | Receive Payments or clicking Receive Payments on the home page. Select the customer and enter the Payment Amount and Check #. QuickBooks will have put a checkmark in front of all the outstanding invoices listed to indicate they’ve been paid.

In the lower left corner, you’ll see a section titled Overpayment. The extra amount and your two options for dealing with it appear here. You can either credit the customer or issue a refund. Click the action you want to take, then save the transaction.

If a customer overpays you, you can use QuickBooks’ built-in tools to credit him or her.
 
You can also issue refunds through the  Write Checks window, but this is a more complicated procedure. It’s easier to process a credit memo.
 
If you’re at all unclear about what we’ve described here, please contact us for assistance. Refunds or credits that come through incorrectly (or not at all) can make customers very unhappy and may affect future sales. So, let us help you get it right the first time.

 

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Jeanne Tarazevits
CPA, QuickBooks Maven, Fishbowl Guru

As a Top 100 QuickBooks ProAdvisor and Fishbowl Inventory Super Hero, Jeanne helps businesses change the way they do business by getting their inventory management, accounting and manufacturing systems all working together seamlessly. In providing these services Jeanne draws upon her knowledge as a CPA, her previous experience as an Auditor with Ernst & Young and long-time CFO of a publicly-traded medical device manufacturer, and the expertise gained in the 10+ years she has been working with Fishbowl Inventory.

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