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Should I use a credit note or cancel the transactions?

You have two options, credit note and cancel the transaction, to reverse an entry in MoneyWorks. Which method is better or rather when to use them?

Credit note

A credit note (a.k.a. Adjustment Note) is a document, usually for returns of goods or adjustments to past invoices. 

Assuming you issue an invoice to a customer. Then, due to an issue with the product sold, the customer has returned the goods, and you give a credit note to the customer to offset the amount owed.

How to enter a credit note in MoneyWorks?

You prepare an invoice (from the Show menu > Transaction > Sales Invoice) and click on the Reverse button to convert the sales invoice to a credit note. The credit note shows a negative quantity and extended price. 

Credit Note

The journal behind the sales invoice transaction:

    Debit Receivable account
        Credit Sales
        Credit GST Output
    Debit Cost of goods sold
        Credit Inventory assets

And the credit note will reverse the entry by:

    Debit the Sales
    Debit GST Output
        Credit Receivable account
    Debit Inventory assets
        Credit Cost of goods sold

Use the credit note to offset future invoices or the ‘Send refund to debtor’ function (from the command menu) if the customer has already paid the invoice.

Cancel transaction

The cancel transaction process in MoneyWorks is for reversing a wrong entry. 

To cancel a transaction:

  1. Highlight the entry.
  2. Go to the command menu, adjustment, then select cancel transaction feature.
Cancel transaction

Cancel a transaction will not remove it from the database. Instead, MoneyWorks create a reverse entry to offset the original.

Assuming you recorded payment (or purchase invoice) for utility expense twice, you may use a cancel transaction method to cancel the duplicated entry.

Although cancellation does a similar reversal as the credit note, you should not use cancellation for goods return or adjustment of invoices. Let’s say you use the cancel transaction method for goods returned from a customer, the journal behind the cancellation:

    Debit Sales
    Debit GST Output
       Credit Receivable account
    Debit Inventory assets
       Credit Cost of goods sold

Although it looks identical to a credit note, cancellation (and the cancelled invoice) will not show in the GST report. Therefore, you should consider using a credit note instead so the sales invoice and the adjustment shown in the GST report. Also, consider using a credit note instead of cancellation if both transactions are in a different financial period or cross between two GST cycles. 

You may consider adding a note (click add note button in the transaction) or a short memo in the description to indicate cancellation and wrong entry (and you may also change the transaction colour to facilitate future searching).

Those users, who understand coding, may consider adding a heading column into the transaction list with the formula:

    !testflags(flags, #3)

The test flags give a value of 0 or 1. 

The result ‘0’ indicate cancellation and a ‘1’ for a valid accounting entry.

In short, use the cancel transaction method for a wrong entry and credit note for all other reversals. Use credit note if you are confused between the two.

Insert a new line in Invoice or Order

One of the improvements in MoneyWorks version 9 is inserting an item line in the detail section of the transaction (e.g. Sales Invoice, Purchase Invoice, etc.)

To insert an item in between the list of items in a transaction of an older version, you have to append the new item and drag it to the position you wish to insert.

macOS: Shift + Option + drag to the position
Windows: Shift + Ctrl + drag to the position

It works fine, but we tend to forget the key combination.

Version 9 has improved it by allowing the user to insert line item anywhere in the transaction/order by press down the Shift key and clicking on the Add Line button. That’s it. You no longer require trial and error between the combination of Shift, Control, Option, and Command key 🙂

Go to the position: Shift + clicking on Add Line button.
insert a line in invoice or order

The same method applies to both macOS and Windows.

There are lots of improvement in MoneyWorks version 9. Book a demo or download a trial to test drive.

Error correction

Oops! I made a mistake.

Cancel Transaction and Credit Note are both reverse entry but use differently. You use Cancel Transaction for correcting duplicated entry, and a Credit Note for adjusting the account.

Cancel Transaction
Cancel Transaction

It does not delete when you cancel a transaction; instead, it creates a reverse entry to correct it and forms an audit trail for the accountant. Unlike Credit Note, both the cancelled and cancellation transaction does not show on the GST report; therefore, you should not use Cancel Transaction as a shortcut for adjusting the account.

Although the journal behind the Cancellation and Credit Note is the same, the GST treatment is different. Consult your accountant if you are not sure of the method used. Use a Credit Note instead of a Cancellation if you are uncertain.

MoneyWorks is a hybrid accounting system that gives the accountant the flexibility of working remotely and enjoying the rich feature of a desktop application. Sign up for a demo to find out more.