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W012
April 11, 2025
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Refund sent to customer for Overpayment but check issued from accounts payable

  • April 11, 2025
  • 1 reply
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We received an overpayment from a customer last year. A couple weeks later we sent a check to the customer refunding the excess funds received. However the check we issued was recorded as being from accounts Payable. Now we are left with an unapplied payment on reports. We can't just delete the payment, because that will mess up last year's bank reconciliations. How do we clean this up? 

    Best answer by Rainflurry

    The unapplied payment I'm referring to is our customer’s overpayment (showing in A/R reports).

     

    I have been scratching my head on this problem, and even asked google's gemini ai for solutions; it gave a l-o-n-g solution, that I hope is not necessary, but it did provoke some additional thoughts for me, since the received payment increases "income"....

     

    I think I have a simple, clean solution; but I would really appreciate some feedback to make sure I'm not overlooking something.  Will this work: 

    1. create a new item named "AR Payment Adjustment" (type = service) linked to existing contra-income account, "Sales Returns & Allowances".

    2. create an invoice to this customer for this item "AR Payment Adjustment"

    3. Apply the erroneous payment to this new invoice

    Any problem with this method?  


    @W012 

     

    Yeah, I agree that your solution is clean and simple.  You're not missing anything. 

     

    The other option is to create a quick journal entry (JE): debit A/R for the customer and credit Sales Returns & Allowances.  That prevents you from having to set up a new A/R Payment Adjustment service item.  I try to avoid JEs whenever possible, but having to set up a service item for most likely one-time use is an exception.

     

    I'm sure you know this, but don't forget to apply the outstanding credit to the A/R balance created by the invoice/JE to close it.  

     

    1 reply

    G
    GenmarieM
    April 11, 2025

    Let's get this figured out for you, W012.

     

    First off, please note that unapplied payment income may show up if a customer made a prepayment before you created the sales form or if you've entered payments without linking them to sales forms. To fix this, open the refund check and ensure it’s classified under Accounts Receivable. Then, use the Receive Payments function to link the transaction to the unapplied payments.

     

    Here's how:

     

    1. Go to the Lists menu.
    2. Choose Chart of Accounts.
    3. Select the appropriate register and open the refund check.
    4. Select Accounts Receivable from the Accounts column in the Expenses tab.
    5. Pick a customer's name in the Customer: Job column.
    6. Hit Save & Close.

     

    If done, you can now link the unapplied payment. Here's how:

     

    1. Navigate to Customers and tap Receive payments.
    2. Pick the customer in the Received from.
    3. Then check the unapplied payment and tick Apply Credits.

     

    Here's an article for detailed information: Void or refund customer payments in QuickBooks Desktop.

     

    Moreover, visit this article for future reference: Take and process payments in QuickBooks Desktop.

     

    We're always here to help if you have other concerns or questions

    W
    W012Author
    April 11, 2025

    Thank you, GenmarieM.  However something here is not tracking; when I go into the bank register and open the check that was sent last year, there is no "Expenses" tab or "Items" tab; I'm attaching a screenshot; please take a look at it if you will.

    There is truly no invoice for the funds received and deposited to our bank account; later a check was made for the same amount deposited, so the deposit and check offset each other; so our bank records have already been reconciled; so....just thinking.... is there any reason can I just delete the unapplied "payment"?

    But when I look at the bank deposit record, I see "from account" for the deposit is "undeposited funds"; so I'm concerned that deleting the transaction from the "receive payments" screen will mess up the bank deposit; am I overthinking this? Or will deleting the payment indeed throw something else off in our books?

    R
    RhoiceW
    April 11, 2025

    Hi there, W012. To resolve the unapplied payment, we can create a journal entry. Let me walk you through the process below.

     

    This will move the payment from Accounts Payable to Accounts Receivable.

     

    Here's how:

     

    1. Go to Company. Then, select Make General Journal Entries.
    2. Create a journal entry to debit Accounts Receivable and credit Accounts Payable for the overpayment amount.
    3. Enter the date of the original transaction.
    4. Debit Accounts Receivable for the customer and mention the customer's name.
    5. Credit Accounts Payable for the same amount and note the customer’s name.

     

    Then, apply the Journal entry to the unapplied payment.

     

    1. Link the journal entry to the unapplied payment.
    2. Go to Customer Center.
    3. Select the customer and find the unapplied payment and the newly created journal entry.
    4. Apply the journal entry to the unapplied payment to clear it.

     

    Refer to this article for creating checks in QBDT.

     

    Additionally, you can void the refund you've processed to your customers if there are any issues when processing it. Refer to this article.

     

    Let me know if you have further concerns about managing your customer transactions. I'm here to help.

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