The document explains how to manage credit memos and customer refunds in QuickBooks Online, emphasizing the importance of accurately recording transactions to maintain proper financial records. Credit memos can be issued to apply credits to customer invoices without affecting cash flow, while refunds are processed as money-out transactions. It also highlights best practices for handling adjustments and the necessity of documenting all transactions for tax purposes.
The document explains how to manage credit memos and customer refunds in QuickBooks Online, emphasizing the importance of accurately recording transactions to maintain proper financial records. Credit memos can be issued to apply credits to customer invoices without affecting cash flow, while refunds are processed as money-out transactions. It also highlights best practices for handling adjustments and the necessity of documenting all transactions for tax purposes.
The document explains how to manage credit memos and customer refunds in QuickBooks Online, emphasizing the importance of accurately recording transactions to maintain proper financial records. Credit memos can be issued to apply credits to customer invoices without affecting cash flow, while refunds are processed as money-out transactions. It also highlights best practices for handling adjustments and the necessity of documenting all transactions for tax purposes.
The document explains how to manage credit memos and customer refunds in QuickBooks Online, emphasizing the importance of accurately recording transactions to maintain proper financial records. Credit memos can be issued to apply credits to customer invoices without affecting cash flow, while refunds are processed as money-out transactions. It also highlights best practices for handling adjustments and the necessity of documenting all transactions for tax purposes.
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Credit memos and customer
refunds Keeping customers happy Clients may encounter situations where they complete a project sooner than expected, purchase more materials than they used, or perhaps a customer has to return a faulty item. In these cases, the client may need to either refund all or part of a payment to the customer or offer them credit against a future service/product.
QuickBooks Online allows clients to give their customers credit that they can apply to invoices. These are issued as Credit memos. Clients can also send refunds to customers if required. They can do this by creating Refund receipts.
Understanding credit memos
A credit memo is a credit applied to the customer’s accounts receivable and it reduces the client’s accounts receivable.
A credit memo is a posting transaction that can be applied to a customer’s invoice as part/full payment. A credit memo doesn’t refund the customer, so it’s not a money-out transaction. Credit memos reduce Accounts Receivable (A/R) but not cash.
Why use a credit memo instead of just editing the original transaction?
If a client completes a job quicker and cheaper than expected, they may think that the best solution is to edit the original invoice accordingly.
However, it’s not best practice to change transactions once the client has sent them to the customer. Editing an existing transaction can cause confusion and isn’t good for recordkeeping. This is especially true when the original invoice is in a prior period because making a change would cause the books to become out of balance with the tax return and change previously reported amounts.
Why not just bill for less on the next invoice?
Most clients have set prices and costs for their products and services in QuickBooks Online. To bill for less on one invoice than another, the client would have to edit the item cost/price or invoice for less than was supplied. Either way, it could affect the books later on. In addition, it’s important to create a new transaction in QuickBooks Online for each exchange between the client and the customer. It clarifies the timing and sequence of events with a customer and can also affect the timing and balances of sales tax liabilities and inventory movement in and out of the company.
Why not just refund in cash and not record?
It’s important to capture all transactions, paid in cash or not, to ensure that the client’s records are complete.
If a client pays their customer back in cash and doesn’t record the transaction, they will pay sales and income taxes on the sales transaction—and receive no benefit from the return transaction deduction.
Why not just refund in cash and not record?
It’s important to capture all transactions, paid in cash or not, to ensure that the client’s records are complete.
If a client pays their customer back in cash and doesn’t record the transaction, they will pay sales and income taxes on the sales transaction—and receive no benefit from the return transaction deduction.
What else can you use credit memos for?
So far, we’ve talked about credit memos in relation to products/services for which a customer has already been invoiced. However, clients can issue credit memos at any time. For example, as part of a loyalty reward or referral incentive program—or as a goodwill gesture.
If clients want to set up a referral scheme, they can add a new Service item called “Thank you for referring us” that’s mapped to a Discounts income account. Then they can use this item when they create the credit memo. To record a credit memo: 1. Select +New, then Credit memo
How are Credit memos applied?
By default, QuickBooks Online automatically applies the value of any Credit memos to existing or new customer invoices.
This feature is controlled by the automatically apply credits setting in the Advanced tab of Account and Settings.
This setting is great for clients with simple Accounts Receivable (for instance, just a few invoices per customer). However, clients who have higher-volume or more complex accounts receivable workflows should use it with caution. If clients want to apply credits manually, they can disable the slider.
Applying a credit memo to an invoice
Customer refunds There may be instances when a credit memo isn’t the right solution, and the client needs to refund money to a customer. This could be due to faulty goods or a one-time job that came in under budget, for example.
In QuickBooks Online, clients can issue a customer refund by creating a Refund receipt.
This is a money-out transaction from the specified payment account.
To create a Refund receipt:
1. Select + New, then Refund receipt
2. Use the Refund From dropdown to select the bank account to issue the refund from
3. Enter the appropriate product/service information. Make sure to fill in the other required fields accordingly
4. When done, select Save and close.
What happens next?
The Refund receipt posts the money-out-transaction but does not issue the refund. The refund will still need to be processed as a check or another electronic payment method.
Follow this link for comprehensive guidance on recording a customer refund in QuickBooks Online.
(Cambridge Handbooks in Language and Linguistics) Anat Stavans, Ulrike Jessner - The Cambridge Handbook of Childhood Multilingualism-Cambridge University Press (2022)
(Cambridge Handbooks in Language and Linguistics) Anat Stavans, Ulrike Jessner - The Cambridge Handbook of Childhood Multilingualism-Cambridge University Press (2022)
