Oct 31, 2013: Updated with more recent screenshots and updated instructions to make them easier to follow.
Nov 26, 2013: Added video tutorial.

A frequently asked question: How do I record a refund received from a vendor in QuickBooks?  I deposited this refund into my bank account...

The Problem:

The deposit window can be used to record  any funds received for deposit including refunds, but it doesn't include an item column for inventory and units on hand tracking purposes, and doesn't include a customer / job column for job costing purposes.  Also, if you've previously entered a bill credit to account for the inventory, making an entry in the deposit window using the associated expense account will not be applied against the vendor account, leaving the credit on the account unapplied.

The Solutions: (Skip to the bottom of this page for a video tutorial)

Option 1 - If you're not using QuickBooks to track job costing, AND aren't using items to track on hand quantities for inventory tracking purposes, AND are on the cash basis of accounting for reporting purposes, just use the deposit window to record the refund.  Note the vendor name in the "Received From" column and use the expense account that was used on the original bill or check.  If you plan to use this option, be sure you understand the reporting implications or check with your accountant if needed.  Click here to Contact Us if you think we could help too. Option 2 - If you do use QuickBooks to track job costing, are using items to track on hand quantities for inventory tracking purposes, or are using the accrual basis of accounting for reporting purposes, follow these steps to record the refund: (This solution assumes you have already entered and paid a bill for the merchandise received)
  • Create a Bill Credit by selecting "Credit" at the top of the Bill window.  Enter the credit as of the date the credit became payable back to you. (usually the date you shipped the items back to the vendor)  Enter the amount of the refund detailing the items on the item tab along with cost, quantity, and customer information and save the transaction. (This transaction will remove the items from your inventory values)

Bill Credit

  • Open the Make Deposit window and use one line of the deposit for this refund.  Enter the vendor's name in the "Received From" column, use the accounts payable account in the "From Account" column, and enter the refund amount that matches the vendor credit amount.  Save this deposit after adding any additional items to deposit along with this refund.
  • Go to the Pay Bills window and select the line representing the refund amount. (This line appears after the Deposit transaction is entered in previous step using the Accounts Payable account)  Apply the credit by selecting "Set Credits".  Ensure the "Amt. to Pay" column shows a zero amount since you're not actually making a payment to this vendor and save the transaction.
Pay Bills
  • Check the Vendor account - The vendor account should now show the correct balance owed (if any) and will show the bill credit / refund.  Inventory quantities on hand of the affected items should also be correct, and job costing reports at the customer level should be reflective of the refund.

How about a Video Tutorial?

Click here to Contact Us if you have a unique situation to work through or are having trouble with this process.  Also, be sure to Join Our Mailing List to receive tips and tricks like this one in your inbox.