How-to · Customers and sales
How to record a customer overpayment
Record the full amount you received, apply what is owed to the invoice, and leave the rest on the customer's account as a credit. The extra sits as a credit balance in Accounts Receivable until you apply it to a later invoice or refund it.
How-to guides / Customer overpayment
The accounting behind it
An overpayment is not income. You haven't earned it; you owe it back to the customer, either as goods and services later or as cash. Until then it shows as a negative (credit) balance on that customer in accounts receivable.
The bank side is simple: the whole amount went into the bank, so the bank goes up by the full amount. The difference between what you received and what you applied is what is left on account.
Some businesses move larger overpayments to a liability account called something like Customer Credits. For a small business, keeping it on the customer in A/R is usually clearer, because it shows up on their statement and on the aging report.
| Account | Debit | Credit |
|---|---|---|
| Bank | Amount received | |
| Accounts Receivable (invoice paid) | Invoice balance | |
| Accounts Receivable (credit left on account) | Extra |
Worked example: $1,500 received on a $1,450 invoice
Northside Dental owes $1,450.00 on invoice 2210 and sends $1,500.00. You apply $1,450.00 to the invoice and the customer has a $50.00 credit.
Next month you invoice them $600.00. Apply the $50.00 credit and they owe $550.00. Or, if they ask, refund the $50.00.
| Account | Debit | Credit |
|---|---|---|
| Checking | $1,500.00 | |
| Accounts Receivable (invoice 2210) | $1,450.00 | |
| Accounts Receivable (credit on account) | $50.00 |
Common mistakes
- Booking the extra $50 as income or as a miscellaneous deposit. It belongs to the customer.
- Applying the extra to an old invoice the customer meant to dispute. Ask what the money was for before you apply it.
- Forgetting the credit exists. Customer statements show it; send one when the credit is large.
- Refunding by cheque and also applying the credit to an invoice, so the customer gets it twice.
In the US and in Canada
United States
If a credit sits unclaimed for years, state unclaimed property (escheat) laws may require you to report and send it to the state. Rules and dormancy periods differ by state.
Canada
Some provinces also have unclaimed property rules, though they are narrower than in the US. If the original invoice charged GST/HST, an overpayment does not change the tax: it is just money held for the customer.
In AcboBooks
Receive Payment in AcboBooks 0.2.1 keeps any unapplied amount on the customer as a credit.
- Enter the payment. Go to Customers → Receive Payment. Choose the customer in Received from, type the full Amount received, the Date and the Check / Ref #, and pick Deposit to.
- Apply what is owed. Click Auto Apply, or type the amount against each invoice in the Payment column. The total line shows the unapplied amount as kept as a credit.
- Save. Click Save Payment. AcboBooks asks you to confirm that the unapplied amount will stay on the customer's account as a credit.
- Use the credit later. When you open Receive Payment for that customer again, a banner shows their available credits. Click Apply credits to open invoices to use it against a new invoice.
Refunding the cash: in 0.2.1 the Refund button sits on credit memos (Customers → Credit Memos), not on unapplied payments. For an overpayment, the simplest route is to apply it to the next invoice. If the customer wants the money back, check with your accountant on how to post the refund.
Menu names are from AcboBooks 0.2.1. Not using it yet? Try it free for 15 days, with the sample company to practise on.
Questions
Is an overpayment income?
No. It is money you owe the customer. It stays a credit on their account until it is applied to an invoice or refunded, and only the applied part becomes payment for a sale.
Should I refund an overpayment or keep it as a credit?
Ask the customer. Regular customers usually prefer a credit on the next invoice. For a one-off customer, a refund closes the account cleanly.
Does the overpayment show on the customer's statement?
Yes. It shows as a credit balance, which reduces what they owe in total.
Related how-to guides
- How to record a customer refund
- How to fix a duplicate payment
- How to record an early payment discount
Terms used here
Updated October 25, 2026. General bookkeeping information, not tax, legal or accounting advice. Rules differ by state and province and change over time; check with the IRS, the CRA or your accountant for your own situation.
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