Recording Credit and Debit Notes
Article ID: 2024651 Last updated: 17 November 2015
At various times you may wish to issue or be issued Credit/Debit notes to or from customers or suppliers. This may be in order to rectify a problem or simply to record a Credit/Debit note that you've sent or received. How you handle the credit/debit note depends on various factors, such as:
- If the Credit/Debit is for an entire Sale or Purchase
- If it is a partial Sale or Purchase
- If any payments have been received or paid
- If the customer requires a refund cheque or a credit on their account
- If the supplier has refunded a paid purchase or there is a debit balance on the account
There are many different situations where a Credit or Debit note can be used and this document will attempt to cover a range of those situations.
Note! Writing-off Bad Debts
At times people will be unable to pay their account, or perhaps simply refuse to pay it. For information about handling Bad Debts, see support note Dealing with Bad Debts.
In AccountEdge, a sales credit note is recorded as a Credit Memo or as a negative sales invoice, whilst a purchase debit note is solely recorded as a negative purchase invoice.
To apply a credit or debit note to an invoice (thus reducing the balance of the invoice to which the credit is applied), go to the Sales Register or Purchase Register> Settle Returns & Credits/Debits, highlight the credit/debit note you wish to apply, and click Apply to Purchase/Sale.
You can also use the Settle Returns and Credits/Debits window to pay or receive a refund using your selected credit/debit note.
Step by Step
Recording a Sales Credit Memo
To record a Sales Credit Memo:
- Go to the Sales menu> Enter Sales.
- In the top left corner of the window, select CREDIT MEMO from the dropdown menu.
- Enter the credit amounts and quantities as positive numbers. Any additional charge, such as a restocking fee, should be added as a negative number.
- Record the transaction.
Recording a Purchase Debit Memo
To record a Purchase Debit Memo:
- Go to the Purchases menu> Enter Purchases.
- Enter the debit amounts and quantities as negative numbers.
- Record the transaction.
Creating a Sales or Purchase Credit/Debit from an Existing Invoice (Reversals)
Note! First, check your security preference to enable the Reverse Transactions feature:
- Go to Setup> Preferences> Security.
- Tick the Transactions Cannot be changed they must be reversed (system-wide) option
To reverse the Whole of an existing Sale/Purchase to create a Credit/Debit note
- Use the Sales or Purchase Register to locate the existing sale or purchase transaction.
- Click on the zoom arrow next to the sale/purchase to display its details.
- Go to the Edit menu at the very top of your screen and select Reverse Sale/Purchase. This automatically creates a negative value credit/debit note for the entire sale/purchase.
- Check the date of the reversal transaction so that it affects your accounts on the date you require.
- Click Record Reversal to record the credit/debit note.
To reverse Part of an existing Sale/Purchase to create a Credit/Debit Note
- Reverse the invoice in manner described above but amend the amounts prior to recording.
Additional information for Item invoice Credits/Debits
If you are crediting/debiting an item invoice whereby items are being returned back into stock, follow the reversal methods above. You can separately record an item adjustment if the items are written off for some reason.
If you are crediting/debiting an item invoice whereby the items remain with the customer/supplier or will not affect your stock register, then record a new negative Service type credit/debit transaction for the customer/supplier (see below). This will allow the value of the invoice to be credited/debited only, and not affect stock in any manner.
Applying a Credit/Debit to an Invoice or Paying/Receiving a Refund
Once you record a Credit/Debit memo, the balance of the customer/supplier will have been automatically updated. However, you will now (or at some point) need to decide how you want to 'Settle' the credit/debit note. Are you going to apply the credit note to an invoice (reducing the invoice's balance) or are you going to pay or receive a refund?
Once you know how you are going to settle the credit/debit, go to the Sales or Purchase Register window and select the Returns & Credits or Returns & Debits tab.
You have three options in settling credits/debits:
1. Pay/Receive a Refund Highlight the credit note you wish to refund the value for and click the Receive Refund or Pay Refund button. Both of these options will 'use up' the credit/debit and record a bank payment or receipt.
2. Apply to Sale/Purchase Use this option to apply the value of the credit/debit note against outstanding sales or purchases to 'use up' the credit value.
As an alternative to the options above:
3. Allow the program to automatically apply the credit/debit to outstanding invoices In the Sales or Purchases menu, going to Receive Payments or Pay Suppliers will produce a message indicating that you have outstanding Debits/Credits on for the selected Supplier/Customer. You will be given the option to Apply Credits, which will automatically apply the Debit/Credits to the oldest outstanding invoices forward.
Disclaimer: This information is of a generic nature. For specific advice regarding your particular circumstances please seek assistance from your Accountant, HM Revenue & Customs or your IT Consultant as appropriate.
Query words: credit, debit, debt, note, memo