How to Record a Vendor Credit and a Vendor Refund in QuickBooks Desktop

Before you start

• A vendor credit lowers what you owe a supplier. You use it against an open bill in Pay Bills.
• A vendor refund is money the supplier sends back, as a check or a credit card refund. The steps depend on why they sent it.
• Have the supplier's credit memo or refund check, and the original bill with its accounts, next to you.
• Not sure which account a refund belongs in? Intuit recommends asking your accountant.

Step 1: Enter the vendor credit

1. 1Go to Vendors > Enter Bills.
2. 2Select the Credit radio button instead of Bill.
3. 3Choose the vendor.
4. 4For goods you sent back, use the Items tab and enter the returned items.
5. 5For other credits, use the Expenses tab. Enter the accounts from the original bill, splitting the amount across them if needed.
6. 6Select Save & Close.

Step 2: Apply the credit to a bill

1. 1Go to Vendors > Pay Bills.
2. 2Select the bill you want to reduce.
3. 3Select Set Credits.
4. 4On the Credits tab, select the credit, then Done. The amount shows in the Credits Used column.
5. 5If a balance is left, enter what you're paying now in Amt. To Pay.
6. 6Select Pay Selected Bills, then Done.

Paying through Intuit's Bill Pay service? Intuit says Bill Pay only pays the full bill amount. Apply the credit in Pay Bills first, set the amount to pay to zero, and save.

Step 3: Record a refund check from the supplier

Use this when the supplier mails a check, for example for a bill you already paid or for stock you returned.

1. 1Go to Banking > Make Deposits. If the Payments to Deposit window opens, select OK.
2. 2In Received from, choose the vendor.
3. 3In From Account, choose your Accounts Payable account.
4. 4Enter the check amount, add a memo or check number if you like, and select Save & Close.
5. 5Enter a bill credit for the same amount, as in Step 1. Use the Items tab for returned stock, or the Expenses tab with the original bill's accounts.
6. 6Go to Vendors > Pay Bills and select the deposit that matches the check.
7. 7Select Set Credits, apply the bill credit, and select Done.
8. 8Select Pay Selected Bills, then Done. This links the deposit to the credit.

Step 4: Record a refund to your credit card

1. 1Go to Banking > Enter Credit Card Charges.
2. 2Choose the card account and select Refund/Credit.
3. 3Choose the vendor and enter the Date, Ref No and Amount, with a short memo.
4. 4For returned items, use the Items tab. Otherwise use the Expenses tab and the right accounts.
5. 5Select Save & Close.

Other refund situations

• Some refunds aren't tied to a bill, such as a rebate or a check that cashes out an old credit. Deposit these with Accounts Payable as the From Account. Enter a bill credit to the account you normally use for refunds, then link them in Pay Bills.
• A refund sent by another vendor on the original vendor's behalf: Intuit's steps use a wash account and extra bills and credits. Follow them closely or ask your accountant.
• A credit applied to the wrong bill: open the vendor credit, switch it to Bill and save. Reopen it, switch it back to Credit, save, and select Yes. The bill is open again.

See which bills a credit was applied to

• For one credit, run Reports > Vendors & Payables > Vendor Balance Detail. Pick the vendor, highlight the bill credit and press Ctrl+H.
• For several credits, run Reports > Banking > Check Detail. Remove the default filters, then filter by date, vendor name and Transaction Type set to Bill Credit.

For the payment run itself, see how to enter and pay bills. For the customer side, see how to create and apply credit memos.

Where QuickBooks Desktop leaves the work to you

• Someone has to spot the credit on the supplier's paperwork and enter it.
• Credits don't apply themselves. Someone picks them in Pay Bills on each payment run.
• A refund check takes three entries: a deposit, a bill credit, and the link between them in Pay Bills.
• Choosing the right account for a refund is a call for you or your accountant.