What a credit note is
A credit note is an invoice in reverse. It records that a customer owes you less than an invoice you already approved says — goods came back, a price was wrong, or a discount was agreed afterwards. The invoice itself is never changed: the credit note sits beside it, with its own number, and is applied to it.
| Situation | Do this |
|---|---|
| The invoice should never have existed — raised twice, or to the wrong customer | Void the invoice (see Invoices) |
| The invoice was right when issued, and later part or all of it is taken back | Raise a credit note and apply it to the invoice |
Raise a credit note
- Open Sales › Credit Notes and press New credit note.
- Choose the Customer — the same customer as the invoice being credited.
- Check the Issue date and the Place of supply. Put the invoice's number in Reference so the customer can match the two.
- Add a line for what is being credited, with the same Account and VAT treatment the invoice line used, and the Quantity and Unit price being credited.
- Press Save draft to finish later, or Review and approve, check the dates and each line’s Chart of Accounts selection in the summary, then confirm approval to post it now.
What approving posts
| Account | Debit | Credit |
|---|---|---|
| Income account on each line | Line amount before VAT | |
| 2200 Output VAT (Payable) | VAT on the lines | |
| 1100 Accounts Receivable | Credit note total |
Your sales and the VAT you owe both fall by the amount credited, and the customer owes you less.
Apply it to an invoice
- Open the approved credit note from the list.
- Press Apply to an invoice.
- Choose one of the customer's invoices that is awaiting payment. The Amount fills with the smaller of what is left on the credit note and what is outstanding on the invoice; change it to apply only part.
- Check the Date and press Apply.
Applying posts nothing more — the credit note posted when it was approved. The invoice's outstanding amount falls, and it becomes Paid when nothing is left. The credit note becomes Paid once all of it has been applied. Applied to on the credit note, and Settled by on the invoice, list what was applied.
Statuses
| Status | Meaning |
|---|---|
| Draft | Saved, no number, not in the ledger. Can be edited, or deleted outright. |
| Awaiting payment | Approved and posted, with credit still to apply. |
| Paid | Fully applied to invoices. |
| Voided | Cancelled. Its entry was reversed; its number is kept. |
Getting it wrong
- A draft is wrong — Edit draft and fix it, or Delete draft if it should not exist at all.
- An approved credit note is wrong — remove its applications, then Void it with a reason and raise a correct one. An approved one is never deleted.
- The customer wants the money back instead of a credit — paying a credit note out in cash is not recorded here yet; see Known limits.
- Invoice INV-00041 to Al Noor Trading was AED 5,250: ten units at AED 500, plus VAT 250. Two units come back.
- New credit note: customer Al Noor Trading, reference INV-00041, one line “Return of 2 units” on the same income account as the invoice, 2 × AED 500, Standard rated (5%). Choose Review and approve, check the summary and confirm approval.
- Open it, press Apply to an invoice, choose INV-00041, amount 1,050, and press Apply.
Approving posts: debit the income account 1,000; debit Output VAT 50; credit Accounts Receivable 1,050. INV-00041 now shows 4,200 outstanding.