Welcome to the topic on A/R credit memos.

In this topic we will discuss how to correct issues that occur after an A/R invoice has been created. Wewill see how to create A/R Credit Memos and how to cancel an A/R invoice.

As part of the initiative to improve customer satisfaction, the company has begun studying how to bestcorrect issues that occur after invoicing.

The key document for correcting invoicing issues is the A/R Credit Memo. A/R credit memos are usedto correct problems with invoice pricing as well as to allow items to be returned for credit.

Another tool for correcting issues is the ability to cancel a marketing document. The company usesthis option when incorrect A/R invoices are created.

The two main correction documents for the sales process are the returns document and the A/R creditmemo.

A previous topic discussed how to use the return document when problems arise from a delivery.

However a return document cannot be used once an A/R invoice is created.

The A/R credit memo (or credit note) is the document used to process returned items or to give apricing credit, once an A/R invoice has been issued.

Another option for correcting invoicing issues is to cancel an invoice and reissue it.

In our business example, the customer is disappointed in the performance of the camera they ordered.

So they have decided to return the camera.

Our item cost for the camera was 50.

The camera was invoiced at the price of 100.

Since the camera had already been invoiced, we had to use a credit memo to process the return.

The A/R credit memo reverses both the invoice posting and the delivery posting

An A/R credit memo (also called a credit note) reverses either partially or fully the journal entrycreated by an A/R invoice.

When you create an A/R credit memo with reference to the A/R invoice, the system corrects both thequantities and values in the A/R invoice.

The system increases the stocks of the credited items.

The system credits the credit memo value to the customer's account in the general ledger andcorrects the revenue by the same amount

If the credit memo is an item-type credit memo with rows for inventory items, then the journal entryfor the credit memo will also increase the stock account and decrease the cost account.

As we just saw, an item-type credit memo normally returns items to stock as well as gives a credit forthe items.

If you wish to give a credit, but not create a goods movement, you have two choices.

You can create an item-type credit memo and select the checkbox Without Qty posting on the itemrow, or you can use a service-type credit memo.

The advantage using an item-type credit memo and the Without Qty posting checkbox is that an item-type credit memo can be copied from an item-type A/R invoice. Only an item-type credit memo, canyou list the item numbers.

Neither of these are possible with a service-type credit memo. Therefore, the service-type credit memois best used for crediting services or for circumstances where you do not wish to reference the invoiceas a base document.

Let us look at an example of creating an item-type credit memo without a quantity posting toinventory.

In this case, a customer’s camera breaks. Unlike our last example, we do not require the customerreturns the item to receive credit.

As before, the original cost is 50 and the invoiced price is 100.

We once again reference the original invoice and create an item-type credit memo. However, this timewe select the checkbox “Without Qty Posting”.

The customer receives full credit for the item and no stock postings are made.

When a customer returns items that do not refer to a specific invoice or if the A/R invoice status isclosed because the invoice was paid, you can post this quantity directly to the warehouse withoutreferencing a preceding document.

If the credit memo is for inventory items, then the stock and stock value increase as a result.

If you do not wish to reverse the stock posting and cost postings, you once again have the option to usethe checkbox “Qty without Posting” to eliminate the goods movement.

Then the only posting is to reverse the postings to revenue and customer accounts.

Sometimes it is not appropriate to create a credit memo, instead you prefer to cancel the originaldocument.

Business One gives you the ability to cancel marketing documents such as an incorrect invoice.

When you cancel a marketing document, a new ‘cancellation’ document is created during eachcancellation procedure. Both the reversing and reversed documents are closed automatically and fullyreconciled.

Canceling a document saves time because any relevant accounting, fiscal, financial and inventorytransactions are completely reversed in one step.

Base documents, such as a delivery, are re-opened after cancellation, and can be used as a basedocument again.

Reporting is available for cancelled documents, since the original posting remains in the system alongwith the cancellation.

You have the flexibility to set a maximum number of days for allowing cancellation after documentsare posted, and relevant authorizations support this process.

A customer was invoiced before all items on the sales order were delivered.

The customer had asked that they not be invoiced until the full order was received.

The customer had ordered several items on a sales order which were partially delivered. When theseitems were invoiced the delivery document status was Closed and the open quantity on the deliverywas 0.

To resolve the customer’s complaint, the invoice is canceled. The cancellation creates an A/R invoicewith reversed amounts.

The original delivery reopens. A second delivery is made.

Now because the full quantity is sent to the customer, the customer can be invoiced for the full salesquantity.

In this demo we create A/R credit memos with and without quantity posting.

In this demo we cancel an incorrect invoice.

An A/R credit memo reverses an A/R invoice’s journal entry either partially or fully.

When you create an A/R credit memo with reference to the A/R invoice, the system corrects both thequantities and values in the invoice.

If the credit memo contains inventory items, then the journal entry for the credit memo will alsoincrease the stock account and decrease the cost account.

A credit memo can be created without reference to a base document, for example when you need tocredit closed invoices that have been paid or for when the credit does not relate to any specificinvoices.

If you wish to give a credit without an impact to stock, you can select the checkbox Without Qtyposting on an item row in an item-type credit memo, or you can use a service-type credit memo.

You can cancel marketing documents such as A/R invoices. A new reversing ‘cancellation’document is created during each cancellation procedure, and both the reversing and reverseddocuments are closed automatically and fully reconciled.Base documents, such as a delivery, are re-opened after cancellation, and can be used as abase document again.

You have completed the topic on A/R credit memos. Thank you for your time.