Over the last few weeks have worked our way through the various workflows and features associated with Accounts Payable within QuickBooks Online. In our exploration we looked at the ways you can purchase and pay for goods and expenses. Now we want to turn our attention to getting your money back if you need to return products to a vendor, or if you happen to receive credits from a vendor toward future purchases.
Vendor Refunds
When you are given a Refund on services you received, or items you returned, it’s important to apply the refund directly to the account used for the original purchase. If you bought a Product, be sure to refund that Product!
In other words, if you bought office supplies and return a box of pens, you want your Profit & Loss Report to only show the total you truly spent on your Office Supplies. If you used an Expense Account for the purchase, refund to that same account. If you used a Product/Service called Pens, refund to Pens.
Be sure to choose the same Product/Service that was originally charged. You want to reverse the expense that you made from the original purchase. A major PEBCAK is to use a separate Expense account like “Refunds.”
How you process the return depends on the form of payment.
Crediting a Credit Card
If you paid by Credit Card, use +New > Credit Card Credit to put the money back on the card.
The Credit Card 'Credit' window in QuickBooks Online, post the refund or return exactly as you did the original purchase [using the same account(s) or same item detail(s)...]
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Cash or Check Refunds
If you receive money back from a Vendor and they refund you using Cash or Check, receive that money through the Banking Feed, or by including it in the Additional Deposits area on Bank Deposits.
The QBO Deposit window reflecting a vendor's refund made by check.
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Issuing Vendor Credits
Let's look at how to both create a vendor credit and apply a vendor credit.
Create a Vendor Credit
If you receive a credit from a Vendor to apply to your next purchase, create a Vendor Credit to keep that amount on file, and apply it to a future Bill.
Select +New > Vendor Credit.
The Vendor Credit window in QuickBooks Online.
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Enter the information, just as you would for a Bill. Note: you should credit either the Account that matches the original purchase, or the specific Item that you are returning.
Select Save and close or Save and new to record the transaction.
Applying Vendor Credits
By default, QBO will apply any Vendor Credits directly to your next Bill Payment automatically. You’ll only have to pay the remaining balance.
Note that Credits only work when you make a payment to a Bill, not when you run a Check or Credit Card Expense for that Vendor.
What if you do not want to apply the Credit yet?
You will need to turn off QBO’s Automation settings for applying credits.
This default is set in Account and Settings.
Select Gear > Account and Settings > Advanced > Automation.
QBO Account & Settings: Automation 'apply credits'
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Turn off Automatically apply credits.
Now when you pay a Bill, you must apply the credits manually yourself.
Use the +New > Pay Bills screen.
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In the Bill Payment screen, look at the Credits section at the bottom. Check off the Vendor Credit that you wish to apply to the open Bill.
Fill in the rest of the Bill Payment as before.
Lesson Wrap-up
When you use the correct workflow, recording Vendor Refunds and Credits is straightforward. Just be sure to use the same Products and Services you purchased in the first place!
If you’re a visual learner and would like to see demonstrations of these steps, head over to my website and take my QBO Fundamentals Course. Be sure to use code IA10 for your 10% discount.
You can also learn more about vendor refunds, cash or check refunds, issuing vendor credits & applying vendor credits, as well as other accounts payable workflows during my Vendor Workflow in QBO webinar on August 12 at 12 Noon Eastern. Find out more about that Insightful Accountant jointly sponsored webinar HERE.
In next week’s article, I’ll share steps with you about employee payroll and paying contractors.