Refunds and Failed Payments - Journal Entries

How FlexPoint handles failed payments and refunded transactions in QuickBooks online and QuickBooks Desktop.

FlexPoint automatically updates your accounting system for payments and deposits. In the event a payment fails or is refunded, FlexPoint reverses the original payment and reopens the invoice.

Watch the video below to see how this works in practice.

QuickBooks Online (QBO) ▶

In this hypothetical scenario, invoice 1040 received a payment of $122 and was later requested to be refunded.

Initial Payment

When the initial payment occurs, FlexPoint will mark the invoice as Paid. The initial payment appears as below in your accounting system. You can see Undeposited Funds is debited (increases) and Account Receivable is credited (decreases). Undeposited Funds acts as a temporary holding account until funds hit your actual bank account.

Initial Deposit

Once the initial payment is sent for deposit to your actual bank account, FlexPoint will create a bank deposit transaction in your accounting system – moving money from Undeposited Funds into your actual bank account.

You will see the below ledger transactions which debit (increase) your bank account balance (Checking in this case) and credit (decrease) Undeposited Funds and credit (increase) the Fees account to record any payment processing fees.

Refund Requested

The client has now requested a refund of the $122 payment. When the $122.00 payment is requested to be refunded, the below journal entries will be recorded which are a debit (increase) to Accounts Receivable and credit (decrease) to the Undeposited Funds account. Note that refunds are netted from future deposits, which is why the Undeposited Funds account is used in this journal entry. FlexPoint will unlink the initial payment from the invoice to the journal entry.

These actions will Reopen the invoice (invoice 1040 in this example) to Unpaid.

Refund Processed

Refunds are funded from future payments, and the below entries appear once the refund is actually processed. In the below example, a $3,370.60 deposit was sent to the Checking account. It included payments for several other invoices along with the Refund for invoice 1040.

QuickBooks Desktop (QBD) ▶

Similar journal entries will be created in QuickBooks Desktop for a failed or refunded transaction. The below examples illustrate a $20.00 refund for invoice 1113.

Journal Entry for reversing the Payment:

Invoice 1113 is now Open.

Refund Processed

Refunds are funded from future payments, and the below entries appear once the refund is actually processed. In the below example, a $263.27 deposit was sent to the Chase Checking account. It included payments for several other invoices along with the Refund for invoice 1113.

Frequently Asked Questions

Why does FlexPoint use Undeposited Funds for refunds?▶

Since refunds are pulled from future deposits, Undeposited Funds acts as the clearing account to net the refund against upcoming payments.

Will my invoice automatically reopen after a refund?▶

Yes — when FlexPoint reverses the payment, the invoice status becomes Open.

Is the accounting different for failed payments?▶

No. A failed payment results in the same reversal entries as a refund request.