How to record a refund you received

When you receive money back from a vendor or customer, QuickBooks needs to know where that money came from and which original transaction it relates to. The process depends on whether you're refunding a customer (money going out) or receiving a refund from a vendor (money coming in). Most refunds are recorded by creating a credit memo or a negative bill, then depositing the money into your bank account.

The core principle is this: a refund is a reversal of a previous transaction. QuickBooks tracks it as a separate entry so your records show both the original charge and the money returned. This matters for your tax records and for reconciling your bank account later.

Key Takeaways

  • A vendor refund (money you receive) is recorded as a negative bill or a check deposit, depending on how the vendor sends it.
  • A customer refund (money you give back) is recorded as a credit memo, which reduces what the customer owes or creates a negative invoice.
  • The refund must be linked to the original transaction so QuickBooks knows which charge it reverses.
  • After recording the refund, you deposit the money into your bank account as a separate step, which QuickBooks matches during bank reconciliation.

Recording a refund from a vendor you paid

When a vendor sends you money back—because you returned items, were overcharged, or received a credit—you have two paths depending on how the money arrives.

If the vendor sends a check or bank transfer: Go to + New (top left), select Check, and fill in the vendor name in the "Payee" field. In the Category column, select the same account or expense category you used when you originally paid them. Enter the refund amount as a negative number (for example, -$150). Save and close. Later, when the money hits your bank account, you'll record it as a deposit and match it to this check during reconciliation.

If the vendor applies a credit to your account: Go to + New, select Bill, enter the vendor name, and set the amount as a negative number. In the Category column, use the same expense account from the original bill. This creates a credit that reduces what you owe the vendor. If you later pay an invoice to the same vendor, QuickBooks will automatically subtract this credit from what you owe.

Recording a refund you give to a customer

When you refund a customer—because they returned a product, you overcharged them, or they cancelled an order—you use a credit memo. This reverses part or all of the original invoice.

Go to + New, select Credit Memo, and enter the customer name. The date should be the date you issued the refund, not the original invoice date. In the line items, enter the same products or services from the original invoice, using negative quantities or negative amounts. For example, if the original invoice showed "Widget: 1 @ $100", the credit memo shows "Widget: -1 @ $100" or "Widget: 1 @ -$100"—both work the same way.

After you save the credit memo, QuickBooks asks what you want to do with it. You can explore it to an outstanding invoice (which reduces what the customer owes), or you can refund the customer. If you refund them, select Refund and choose the payment method—check, credit card, or bank transfer. QuickBooks then creates a refund check or payment record that you can print or process.

Linking the refund to the original transaction

QuickBooks does not automatically connect a refund to the invoice or bill it reverses. You have to do this manually, and it matters for your records.

When you create a credit memo for a customer refund, you can explore it directly to the original invoice by selecting the invoice in the "explore Credit To" section. This closes both transactions and shows the net result. When you create a negative bill for a vendor refund, the same principle applies—you can link it in the vendor's transaction history so both entries appear together.

If you do not link them, QuickBooks will still record the money correctly, but your reports will show the original charge and the refund as separate line items. For tax purposes and auditing, linking them is cleaner and makes it easier to explain what happened if someone reviews your books later.

Depositing refund money into your bank account

After you record the refund in QuickBooks, the money still needs to be deposited. This is a separate step that happens after the vendor or customer actually sends the money.

Go to + New, select Deposit, and choose the bank account where the money landed. In the "Received from" field, enter the vendor or customer name. In the Category column, select the account you used when you recorded the refund (the same expense account or income account). Enter the amount. Save and close.

Later, when you reconcile your bank account in QuickBooks, you'll match this deposit to the actual transaction on your bank statement. This confirms that the money actually arrived and that your records match the bank's records.

What happens if you record a refund but the money never arrives

Sometimes a vendor promises a refund or a customer requests one, but the money does not show up. In QuickBooks, you have already recorded the refund as if it happened.

If the refund does not arrive within a reasonable time, you can delete the refund record if it was never deposited, or you can create an offsetting entry to reverse it. For a vendor refund that never came, delete the negative bill or check. For a customer refund that was never sent, delete the credit memo or the refund check. If the transaction is already linked to other entries, you may need to unlink it first. If you are unsure, ask your accountant—reversing old entries can affect your tax records.

Recording partial refunds and split refunds

Not every refund is for the full amount of the original transaction. A customer might return one item from a multi-item order, or a vendor might only refund part of an overcharge.

For a partial customer refund, create a credit memo and enter only the line items being refunded. If the original invoice was for two widgets at $100 each and the customer returns one, the credit memo shows one widget at $100 (or one widget at -$100, depending on how you set it up). QuickBooks calculates the credit amount automatically.

For a partial vendor refund, create a negative bill with only the amount being refunded. If you were overcharged $50 on a $200 invoice, the negative bill is for $50. This reduces what you owe the vendor by that amount.

If a refund arrives in multiple payments—for example, a vendor sends $100 now and promises $50 next month—record each deposit separately as it arrives. Do not record the full refund until you have received all of it.

Frequently Asked Questions

Do I record a refund before or after the money arrives?

Record the refund in QuickBooks when you issue it or when the vendor issues it to you, not when the money actually arrives in your bank account. Then, when the money lands, record a separate deposit entry. This way your books show both the refund decision and the actual cash movement.

What if I refunded a customer but they never cashed the check?

If the refund check was never deposited, you can delete the refund record from QuickBooks. If the check is old and you want to void it instead, mark it as void in QuickBooks rather than deleting it—this keeps a record that the check existed. Contact your accountant if the check is more than a few months old, because voiding it may affect your tax records.

Can I record a refund to a credit card instead of a bank account?

Yes. When you create the deposit or refund check, select your credit card account instead of your bank account. QuickBooks will record the refund as a credit to that card, reducing what you owe on it.

How do I know if a refund was recorded correctly?

Run a transaction report for the vendor or customer and look for both the original charge and the refund entry. They should appear as separate line items. If you linked them, QuickBooks may show a net amount. Check your bank account to confirm the refund money actually arrived, then reconcile that deposit in QuickBooks to match your bank statement.

What account should I use for a refund if I do not remember the original expense category?

Use the same category you used for the original transaction. If you cannot find it, check your bank statement or your vendor invoice to see which account you charged it to originally. Using the same account keeps your records consistent and makes it easier to track spending in that category.