Have you come across credit memos when using Quickbooks to track your business’s financial transactions? If so, you might be wondering what they are. Based on the name alone, many business owners assume that credit memos are nothing more than notes used for reference purposes. Credit memos, however, can actually affect account balances. So, is a credit memo exactly, and when should you use them?
Overview of Credit Memos
A credit memo is essentially a note stating that your business owes a customer money. Maybe a customer returned a product, or perhaps the customer was overcharged for a product. Regardless, if your business owes a customer money, you can create a credit memo to adjust his or her account.
Credit memos add a negative balance to the customer’s account. When you create an invoice for a customer, it will add a positive balance to his or her account. Credit memos work in the opposite way by adding a negative balance to the customer’s account.
How to Create a Credit Memo in Quickbooks Desktop
If you use Quickbooks Desktop, you can create a credit memo by selecting “Create Credit Memos/Refunds” under the “Customers” menu. Next, you’ll need to select the customer for whom you are issuing the refund under the “Customer:Job” menu. After entering the product or products associated with the refund, click “Save & Close.”
You aren’t out of the woods just yet. Quickbooks will now ask you to choose from one of three supported refund methods. You can choose to issue the refund as credit, give the customer an actual refund, or apply the refund to one of the customer’s outstanding invoices.
If you issue the refund as credit, the customer will be able to apply it on future purchases. Giving the customer a refund, on the other hand, means he or she will receive a payment for the amount of the credit memo. Finally, applying the refund as an invoice credit will offset the balance of the customer’s unpaid invoice. You can use any of these three methods to handle money owed to a customer.
A credit memo is a note stating that your business owes money to a customer. In Quickbooks, they are used to add a negative balance to a customer’s account. When you create a credit memo for a customer, his or her account will receive a negative balance in the amount of the credit memo.
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