Series

We have several posts here at Begin Coding Now that are on QuickBooks Online that are grouped into Series. Click the previous link to see the list.

What is a credit memo? It’s a return or refund from an invoice that we’ve issued to a customer of ours. We are reducing the amount of money they owe us. It has the opposite effect of an invoice, so we are reducing the balance of an open invoice. They have not yet paid us, making the invoice “open”. Why would yo do this? Perhaps you have a return from a customer, or you need to refund a portion of services because they were not correctly performed.

When you issue a credit memo you must use the same items or income accounts as on the original invoice. You must know the original invoice and what exactly we sold to the customer. You could have a look at the Open Invoice report. The original invoice increased the income or revenue account and also increased the accounts receivable account (and the account for the particular customer). So a credit memo does the opposite of that. Have you noticed that when you return an item to a store, you must bring your receipt (the “original invoice”) and you must bring the original payment method (debit or credit card) to apply the credit to. Of course if it was originally paid in cash, you don’t need to bring a credit or debit card because the refund will be in cash.

This is not the case here, but if you are refunding from a sales receipt, you need to issue a refund receipt.

You often apply the credit memo to an invoice when it is being paid. In other words, the customer has talked to you and you’ve allowed a reduction in the invoice and, for example, they will send a cheque to you for an amount less than the full value of the original invoice.

You apply credit memos to an existing open invoices. It must be open. Check out the setting post Applying Customer Credits Setting.

When you enter a credit memo you will notice that it has automatic enumeration. If the last invoice was number 7, then your new credit memo will be number 8.

How do we do this? Go to + New, Credit memo. Choose the customer and the date. Choose the product or service that they are getting credit for and the quantity of hours or products. Add a description and include the original invoice number and other details as needed. Click Save and Close.

Applying the Credit Memo

We may or may not let the customer decide which invoice the credit memo should be applied to. First, we make sure the setting is correct. Automatically apply credits should be off. Here we are applying our credit memo to an open invoice, but we are not yet paying it. We will pay it shortly. We first want to decrease the amount of the invoice. We can call this a “zero dollar payment“. Use the receive payments window. We apply the credit “as if” we are paying the rest of the invoice, but the payment amount will be zero. After we do this, the credit memo will disappear from the open invoice report because it is already applied.

Go to + New, Receive payment under the Customers column. In the Receive payments window you have three sections. The top section will have Amount received, which we will type in 0. The second section will have open invoices listed. Uncheck and check the invoice that the credit memo applies to. The last section will have a list of credit memos. Check the correct one. Make sure all three dollar amounts are correct. Suppose the credit was for $60. The numbers should be $0, $60 and $60 (top to bottom) and in the correct boxes.

Learn from Udemy

Some of this information is based on a Udemy course called QuickBooks Online Complex Issues And Advanced Techniques.