Creating a credit invoice in QuickBooks accomplishes a few things. First, it triggers the software to increase the sales returns account by the amount of the credit, which ensures that revenue isn't overstated on the income statement. It also creates an accounts receivable credit that you can use to fulfill the client's financial obligation to your company. You must create the credit and apply the credit to the customer in two separate transactions.
Creating the Credit Invoice
To create the initial credit invoice, complete the following steps:
- From your QuickBooks home screen, choose Customers from the menu and select Create Credit Memo. QuickBooks will launch a credit memo wizard.
- Select the customer you want to apply the credit to by typing in the customer name as it appears on the invoice. For the account type, choose "accounts receivable."
- In the item box and quantity box, type in the item the credit applies to and indicate the quantity of items. If you've coded a price for the item, the price per item and total credit amount will automatically populate in the adjacent boxes. If they don't, type the item price and total credit amount in manually.
- If you want, you can write a memo that explains the reason for the credit. For example, you could write, "items were defective" or "service was not rendered on time."
- Save the credit invoice.
Apply the Credit Invoice
After creating the credit invoice, you must apply it to the customer's account.
- Navigate to the Customer screen and select Receive Payments. This is the same screen you use to process incoming cash, checks and credit card payments for goods and services.
- Under Received From, choose the customer that needs the credit. If you've selected the right customer, you will see an available credit appear in the Amount to Use column.
- Select the specific customer invoice you want to apply the credit to and select the available credit on the screen.
- Select Done, then Save & Close.