Software: Intuit QuickBooks Desktop accounting software
Credit Memo (aka Credit Note or Adjustment Note) is an accounting document given by the seller to the buyer for goods or services returned. A refund of the credit amount can be given or offset against the future purchase.
Use the “Create Credit Memo/Refund” feature in QuickBooks to record the return of goods/services from a customer. QuickBooks gives the user an option to retain as an available credit to offset against the future purchase, give a refund immediately, or apply to an invoice when the credit memo saved. Among the three options, “Retain as an available credit” is most commonly used.
“Retain as an available credit” is use to contra the credit memo against the future purchases. Let’s say you have issued a credit memo and some invoices for a customer. When making payment, the customer can opt to apply the credit memo to the outstanding sales invoices. In the QuickBooks’ Receive Payment transaction, click the “Discount & Credit” button after you have highlighted the sales invoice and apply the credit memo to an invoice accordingly.
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A Credit Note (an Adjustment Note) is a sales form given by the seller to the buyer to correct the mistake made in the Sales Invoice or goods returned.
From the Customers menu of the QuickBooks accounting software select Create Credit Memo/Refunds to add a new Credit Note.
Assuming a customer has returned an item, which he has purchased at $254.80 before tax. You record the item with $254.80, a positive value, in the amount field. QuickBooks will automatically debit the income and credit the Accounts Receivable account. If it is an inventory item, QuickBooks will also debit the stock account and credit the Cost of Goods Sold account when you saved the credit note.
You have an option of retaining the credit note as an available credit, give a refund, or offset the credit with an invoice after saving the credit note.
Although you did not enter the value with a negative, QuickBooks prints the Credit Note form with a negative in front of the credit value.
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I saw some of my clients' QuickBooks data file; the adjustment note (credit note) to their customer was not knocking off against the invoices. Thus, this result in many of these credit accounts receivable still reflected in the accounts receivable ageing report.
Most of the reason for this was they do not know where or rather how to clear off these credit accounts receivable amount.
How to knock off these credit accounts receivable?
For user who are using QuickBooks version 6 or 8, you can go to the Receive Payment form, select your customer name and "check" the check box for "apply existing credit" and select your invoice to apply with this credit.
For QuickBooks version 2002 to 2007/08 user, you can go to the Receive Payment form and select the invoice to be applied to the credit; then, click the "Set Credit" button and select your credit note that to be applied from the sub-window.
As for QuickBooks 2009/10 user, it is much more easier, in the Adjustment/Refund form (Credit Note), click the "Save & Close" button QuickBooks will prompt you whether you want to:
- apply credit to the existing invoice
- create a cheque refund, or
- retained as credit balance
These feature helps user to follow up your next action after adjustment note (credit note) is being created. This is a wonderful feature, it further enhance the ease of use of QuickBooks accounting software.
To further illustrate this feature, you can attend our regular QuickBooks weekly demo at our office.