Record a Returned Credit Card Payment in QuickBooks Desktop

Step-by-Step Guide to Recording a Returned Credit Card Payment

1. Understand the Reason for the Return

Before recording the transaction, identify the reason for the returned payment. Common reasons include:

• Insufficient funds.
• Credit card processing errors.
• Customer disputes or chargebacks.

Having this information will help you categorize and document the transaction accurately in QuickBooks Desktop.

2. Locate the Original Payment in QuickBooks

1. Go to Customers in the top menu and select Customer Center.
2. Find the customer whose payment was returned.
3. Click on the payment you wish to reverse.

Review the details of the transaction to ensure it matches the returned payment notification.

3. Reverse the Payment

You can reverse the payment to reflect the returned transaction:

Steps to Reverse the Payment:

1. Open the original payment in QuickBooks Desktop.
2. Click Edit in the top menu, then select Delete Payment.
3. Confirm the action.

This step will remove the original payment, but you’ll need to create a journal entry to accurately record the return.

4. Create a Journal Entry for the Returned Payment

To record the return in your financial records:

1. Go to Company > Make General Journal Entries.
2. In the Journal Entry window, enter the following details:
   • Date: Use the date of the returned payment.
   • Debit: Enter the amount into the account where the payment was initially deposited (e.g., bank account or undeposited funds).
   • Credit: Enter the same amount into the customer’s Accounts Receivable (A/R) account.
   • Add a memo explaining the reason for the return for reference.

Example of a Journal Entry:

• Debit: Bank Account (e.g., $200)
• Credit: Accounts Receivable (e.g., $200)

Click Save & Close to record the journal entry.

5. Link the Journal Entry to the Customer’s Record

To reflect the returned payment in the customer’s account:

1. Go to Customers > Receive Payments.
2. Select the customer and apply the journal entry created in the previous step.
3. Click Save & Close.

This step ensures the customer’s outstanding balance reflects the returned payment.

6. Handle Bank Fees (If Applicable)

If the bank charged a fee for the returned payment, you need to record it:

1. Go to Banking > Write Checks.
2. Select the bank account affected by the fee.
3. Enter the following details:
   • Payee: Bank or financial institution charging the fee.
   • Expense Account: Bank Service Charges or a similar expense account.
   • Amount: Enter the fee amount.

Click Save & Close to record the transaction.

7. Communicate with the Customer

Once the returned payment is recorded:

• Notify the customer about the return and any associated charges.
• Discuss repayment options or resolve disputes if necessary.

Maintaining clear communication fosters trust and ensures timely resolution.

Common Scenarios and Solutions

Scenario 1: Customer Repays the Returned Amount

If the customer repays the amount:

1. Go to Customers > Receive Payments.
2. Select the customer and enter the payment details.
3. Apply the payment to the outstanding invoice.

Scenario 2: Writing Off the Amount as Bad Debt

If the customer cannot repay the amount:

1. Go to Customers > Create Credit Memos/Refunds.
2. Create a credit memo for the uncollectible amount.
3. Apply the credit memo to the outstanding invoice.

Scenario 3: Partial Repayment by Customer

If the customer repays part of the amount:

1. Record the partial payment as usual under Receive Payments.
2. Create a journal entry for the remaining unpaid amount, debiting Bad Debt Expense.

8. Reconcile Your Accounts

Finally, ensure that all transactions are reconciled:

1. Go to Banking > Reconcile.
2. Select the account affected by the returned payment.
3. Match the journal entry, fees, and repayments with the bank statement.

Completing this step ensures your financial records align with your bank’s records.

Best Practices for Managing Returned Payments

• Monitor Notifications: Set up alerts for returned payments to act promptly.
• Review Customer History: Check the customer’s payment history before reattempting charges.
• Set Clear Policies: Establish clear payment and fee policies to avoid future issues.
• Automate Processes: Use QuickBooks add-ons to automate payment reminders and follow-ups.

Why Record Returned Credit Card Payments?

When a credit card payment is returned, it directly impacts your financial statements. Properly recording this transaction in QuickBooks Desktop helps:

1. Maintain Accurate Records: Ensures that your books reflect the actual state of your finances.
2. Reconcile Accounts: Facilitates seamless bank reconciliation.
3. Manage Customer Relationships: Helps in tracking payment issues and following up with customers.
4. Compliance: Keeps records compliant with accounting standards.

Conclusion

Recording a returned credit card payment in QuickBooks Desktop might seem daunting, but following these detailed steps will help you manage such transactions effectively. Proper handling ensures accurate financial records, smooth reconciliation, and better customer relationship management.

By staying proactive, maintaining transparency with customers, and utilizing QuickBooks Desktop’s robust features, you can streamline your accounting processes and focus on growing your business.