Understanding Payment Processor Refunds in QuickBooks
Refunds from Stripe, PayPal, and Square appear as negative transactions in your CSV exports. Here's how to account for refunds correctly in QuickBooks without double-reversing revenue or losing fee tracking.
How Payment Processors Handle Refunds
When you issue a refund, payment processors create a new transaction with negative amounts, not by deleting the original sale. This is critical for QuickBooks accounting.
Example: $100 Sale → Full Refund
Nov 15: Original Sale
Nov 20: Refund Issued
Note: Some processors refund fees, some don't. See details below.
Key Principle
Your CSV will show both the original $100 sale and the -$100 refund as separate rows. QuickBooks must record both to maintain audit trail.
Fee Refund Policies by Processor
| Processor | Fee Refund Policy | CSV Shows |
|---|---|---|
| Stripe | Refunds fees for full refunds (Partial refunds: no fee refund) | Gross: -$100.00 Fee: $3.00 (credited back) Net: -$97.00 |
| PayPal | NO fee refund (you lose the fee) | Gross: -$100.00 Fee: -$0.00 Net: -$100.00 |
| Square | Refunds fees for all refunds | Gross: -$100.00 Fee: $3.00 (credited back) Net: -$97.00 |
| Shopify | Refunds fees for full refunds | Amount: -$100.00 Fee: $3.00 (credited) Net: -$97.00 |
PayPal is the outlier: You permanently lose the original processing fee when issuing a PayPal refund. This means your Net refund is -$100 even though you only received $97 originally.
QuickBooks Journal Entry for Refunds
Refunds are recorded as negative revenue (reversing the original sale) and negative clearing account (money leaving your account).
Stripe/Square Full Refund (Fee Refunded)
| Account | Debit | Credit |
|---|---|---|
| Revenue | $100.00 | — |
| Stripe Fees | — | $3.00 |
| Stripe Clearing | — | $97.00 |
Reverses both revenue ($100) and the original fee expense ($3). Net impact: -$97 from clearing account.
PayPal Full Refund (Fee NOT Refunded)
| Account | Debit | Credit |
|---|---|---|
| Revenue | $100.00 | — |
| PayPal Clearing | — | $100.00 |
Only reverses revenue ($100). The original $3 fee expense remains (you lose it). Net impact: -$100 from clearing account.
⚠️ Important: Don't Double-Reverse
If your CSV processing tool automatically converts refund rows (Gross = -$100) into journal entries, you're done. Do NOT manually create a second "refund" entry or you'll double-count the reversal.
Partial Refunds
Partial refunds (e.g., refunding $50 of a $100 sale) follow the same logic but with different fee treatment:
Example: $100 Sale → $50 Partial Refund
Original Sale (Nov 15):
Partial Refund (Nov 20 - Stripe):
You keep the original $3 fee even though you refunded half the payment.
QuickBooks Entry for Partial Refund:
| Account | Debit | Credit |
|---|---|---|
| Revenue | $50.00 | — |
| Stripe Clearing | — | $50.00 |
Only reverses $50 of revenue. The original $3 fee remains as an expense.
Common Refund Accounting Mistakes
❌ Mistake 1: Deleting the Original Sale
Deleting the original $100 sale and not recording the refund breaks your audit trail and makes reconciliation impossible.
Fix: Keep the original sale. Record refund as a separate negative transaction.
❌ Mistake 2: Recording Refund as an Expense
Creating an "Expense" transaction for refunds inflates your expense accounts and doesn't reverse revenue.
Fix: Record refunds as negative revenue (debit Revenue account).
❌ Mistake 3: Ignoring Fee Refund Differences
Assuming all processors refund fees (they don't - PayPal never does) causes reconciliation variance.
Fix: Check processor's refund policy. For PayPal, don't reverse fee expense on refunds.
❌ Mistake 4: Not Grouping Refunds with Original Sales
Recording a November refund for an October sale in November's books makes monthly P&L inaccurate.
Fix: Use transaction date for refunds, not original sale date. Accept that refunds impact the period they occur in.
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