Tag Archives: Credit Note

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.

How to record a credit note?

Software: MoneyWorks accounting software

MoneyWorks uses the reverse sales invoice (negative invoice) method to record a credit note. It converts the sales invoice into a credit note by clicking on the reverse button on the sales invoice transaction.

Upon converting, it changes the quantity into a negative value, multiplying the unit price to derive a credit amount (negative) if you are using products or services (A negative net amount if you are using a ledger account instead). Of course, you can also manually enter a negative quantity instead of clicking the reverse button to create a credit note.

Credit Note (a.k.a. Negative Invoice)
Credit Note

The credit note debits the sales and credit accounts receivable, which later offset the outstanding invoice.

You have an option of offsetting the credit note with an invoice from the Command menu (via a contra method) or when receiving payment from the customer. Both work, but offset during received payment is preferable (The contra feature is not for contra between a creditor and a debtor owing, but the credit note and outstanding invoice of the same debtor).

Credit Note (a.k.a. negative invoice) shared the same running sequent number as the sales invoice. You may manually change the reference number but try keeping the system-generated number to reduce confusion or mistake.

You can use the invoice form to print the Credit Note by amending the formula of the form tile from a simple text field to an if( ) statement:

if(Transaction.gross < 0, “Credit Note”, “Invoice”)

It prints as a ‘Credit Note’ when the invoice gross is smaller than $0 and ‘Invoice’ when it is $0 or greater. It helps reduce the number of forms you require to manage, ease the operation and reduce mistake made.

MoneyWorks, as a hybrid system, allows sharing of data in the cloud and uses its feature-rich desktop app. Book a demo to find out how to use MoneyWorks to manage your business finance.

How to create a Credit Note in QuickBooks?

Software: QuickBooks Desktop accounting

Credit Note is a document issued from the seller to the buyer for goods returned or credit for overstated in sales value.

QuickBooks Credit Memo

For QuickBooks Desktop accounting, the Credit Memo (a.k.a. Credit Note) is under the Customers menu (Create Credit Memo/Refund). Credit Memo is using the same sequential number as the Sales Invoice. For example, if the last sales invoice number is 1234, then the next Credit Memo number is 1235. Some accountant may like to have a unique sequential number for the Credit Memo, such as using a prefix to tag the Credit Memo (CN2001, CN2002, etc.); by doing so, the following Sales Invoice number will continue from the Credit Memo saved. For example, if the Credit Memo is CN2002, then the next Sales Invoice will continue as CN2003, you have to change the invoice number manually to keep it consistent.

QuickBooks Discount and Credit

Similar to the Sales Invoice, you cannot use a General Ledger account directly in Credit Memo. Consider creating an Other Charge item and associate it to the relevant income account from the item list and use it in Credit Memo if the credit is not about goods returned. You do not need to enter a negative value for the credit amount, QuickBooks will credit the accounts receivable and debit the relevant income or inventory account automatically. You have an option of retaining it as a credit to offset against future invoices, give a refund, or offset with the existing outstanding invoice when the Credit Memo saved.

QuickBooks is a simple, easy to use accounting system for small businesses; it has both Cloud-based (QBO – QuickBooks Online) and a Desktop version for those who prefer to keep their accounts locally. Sign up a free QuickBooks demo to find more on how to use QuickBooks to manage your business finance.