In plain English
The processor takes the money back and often adds a fee. You can submit evidence to contest it within a deadline.
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Record the reversal and the fee separately so costs are visible.
Why it matters
A chargeback pulls money out of your account after you thought a sale was complete, and the fee often applies even if you win. If you do not record it, your bank account will not reconcile and your revenue will look higher than what you actually kept.
Frequent chargebacks can also cause a processor to hold your funds or close your account. Tracking each one, with the reason code and outcome, lets you spot patterns such as unclear billing descriptors, delivery problems or fraud, and fix the cause.
Worked example
A $120 sale is disputed and a $15 fee is added. If you lose, revenue falls by $120 and bank charges rise by $15.
How to handle it
- When the processor notifies you, save the notice, the original order details and any customer messages.
- Record the reversed amount against sales or a refunds account and the fee to a bank or processor fees account.
- Submit your evidence through the processor before its stated deadline.
- If you win, record the returned funds; if you lose, leave the reversal in place.
- Keep a simple log of chargebacks with dates, amounts, reasons and outcomes.
Common mistakes
- Netting the fee into the reversed sale, which hides how much disputes are really costing you.
- Ignoring the notice, which usually means losing the dispute by default.
- Issuing a refund to the customer after a chargeback is already filed, which can result in paying them back twice.
- Leaving the reversal unrecorded, so the clearing account or bank reconciliation is off by the disputed amount.
Not the same as: Credit memo
A credit memo is a reduction you choose to give a customer. A chargeback is a reversal forced by the cardholder's bank through the card network. See Credit memo.
Go deeper
- Recording Customer Refunds, Credits and Chargebacks: How to book refunds, credit memos and card chargebacks correctly so sales, taxes and bank balances stay accurate and customer accounts stay clean.
- Bookkeeping for Stripe Payouts, Fees and Disputes: Reconcile Stripe payouts to your bank, record fees, refunds, disputes and balance holds so revenue is reported correctly.
Related terms
- Chart of accounts: The list of accounts a business uses to sort its transactions.
- Clearing account: A temporary account that holds money or entries until they are matched to the final destination.
- Cash flow: The movement of money into and out of a business over a period.
Common questions
What is a chargeback?
A reversal of a card payment forced by the cardholder's bank, usually after a dispute.
Can you give an example of chargeback?
A $120 sale is disputed and a $15 fee is added. If you lose, revenue falls by $120 and bank charges rise by $15.
Can I refuse a chargeback?
You cannot block it, but you can usually contest it by sending evidence to the processor. The card issuer then decides the outcome.
Does a chargeback affect sales tax?
If sales tax was charged on the original sale and the sale is reversed, the tax may need to be adjusted too. Check your state's rules or ask your accountant.
General information, not tax, legal or accounting advice. Confirm rules with the IRS, the NJ Division of Taxation or a licensed professional.
