How do I handle refunds and chargebacks in my accounts?

Question

Expert Bookkeeping Services · Accepted Answer

Link refunds and chargebacks to the original sale, separate processor fees and review any tax adjustment. Do not simply classify every deduction from a payout as a new business expense. Trace the original transaction A refund usually reverses some or all of an earlier sale, while a chargeback may still be disputed. Retain the customer credit note, processor notification and relevant correspondence. Check whether returned inventory should be restored and whether collected sales tax, VAT or GST needs correction under the local rules. Reconcile the settlement Payment platforms may deduct refunds, dispute fees and reserves from later payouts rather than the original settlement. Record those components separately in a clearing account and match the net deposit to the bank. Track unresolved disputes and reverse a provisional entry appropriately if you win. Review negative clearing balances instead of assuming that every short payout represents a sales refund.

How do I handle refunds and chargebacks in my accounts?

Short answer

Detailed answer

Trace the original transaction

Reconcile the settlement

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