How to Handle Vendor Refunds in QuickBooks
This tip is in response to many e-mail messages with the same query. The questions all resembled this one: "I received a refund from a vendor because the vendor had made a mistake in its bill. I created a vendor credit in QuickBooks and then deposited the money in the bank using A/P as the account and using the vendor name. The deposit showed up on my bank statement, but the credit still shows up on the vendor's record. How do I clear that credit?" (Two of the e-mail queries said the writers had made purchases with debit cards, and returned the items. Each vendor issued a credit against the debit card account. Both readers also created a credit before depositing the refund check and wanted to know how to clear the credit from the vendor record.)
There's no vendor credit involved in these transactions; instead, they are refunds, and that's a different type of transaction. Void the Credit you entered in QuickBooks. Change the deposit so that no vendor name appears in the transaction, and post the deposit to the expense account you used when you recorded the original purchase.
If the vendor issued a credit that you recorded in QuickBooks, and then later issued a refund check to clear the credit, that transaction requires you to clear the credit with the refund check. In this case, deposit the check using the vendor's name in the Name column and posting the check to Accounts Payable. When you save the deposit, QuickBooks posts a debit (an ersatz vendor bill) to the vendor record. Open the Pay Bills window and you'll see that bill. Select it and apply the credit against it, creating a zero-amount payment. No checks are written (because QuickBooks doesn't pay zero-amount bills), the bank deposit is correct, and the credit is gone.