does your law firm sometimes need to reduce the amount that a client owes you
well in that case you should watch this video giving credits to clients
if you have any questions about this topic you can leave them in the comments section below
and i'll do my best to help you and of course if you feel the video helped you i hope you will
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sometimes you need to decrease the amount that you require a client to pay
for a past service it can be for many different reasons the action of reducing a client's balance
is documented in a credit memo for example february 20 we gave candy charles
a hundred dollar reduction of her balance for some reason it could be any reason
we will make a credit memo to document this event the specific service that we are retroactively
decreasing the charge for was legal services rendered so what will change in the trial balance
when we make a credit memo for a customer well income from legal services will decrease
because if we're giving credit it means we earn less of that income and unearned legal fees will
also decrease because if we earn less income that means we owe less legal fees or less legal service
in the future so unearned legal fees will decrease but be careful it will become more negative
as a result of making a credit memo but will the customer's balance change and the answer is yes
the open invoice report will show the whole picture of what's going on with the customer's
balance so what will your trial balance look like after recording this credit memo well we know that
unearned legal fees will decrease and become 500 more negative because it's not really supposed
to be on the credit side it's there because it's negative because we owe in the future
so if we give a credit to the client where we've earned less income that means we owe less
in future services and that's why the negative number becomes more negative five thousand five
don't worry about that the legal service income goes down because we earn less income and it
decreases by five hundred dollars so let's go ahead and record this credit memo from the top
left click new and then go down to credit memo now we know the customer that we're giving the credit
to is candy charles and we know that the day that we're giving the credit is february 20 of 2021
we click directly under the words product and service then we click the pull down arrow
and we must choose the same item that was on the invoice that we charge the client that has to be
the same item that we put on a credit memo and we put the amount of credit we're giving
500 now when we click save and close we can click reports trial balance and you can see
the numbers are exactly as what we expected legal services income is 19 500 and unearned legal fees
was decreased by the credit memo because it is an accounts receivable type of account
and accounts receivable goes down when you make the credit memo document so it is more negative
and it is now five thousand five hundred the most important report to consider is here reports open
invoice report now take a look at candy's open invoice report invoice number three was originally
two thousand but you see it's only listing it as one thousand five hundred and that's because
quickbooks online automatically applies any credit or payment to any invoice that was already open
so this invoice was already open at the moment we recorded this credit memo and it was two thousand
and quickbooks online automatically applied the five hundred dollar credit let's double click and
open this invoice you can see the original amount actually the original amount was thirteen thousand
and there was eleven thousand five hundred received eleven thousand was received from a past
payment and 500 was received by way of a credit close this out and i'll show you if we actually
open the payment we can click reports transaction list by customer now if we go down to candy
you see what happened here this is the actual this is a strange behavior of quickbooks online because
quickbooks online will automatically apply any credit to any open invoice but it will do this
it will first record the credit memo see here's the original invoice this
is a behavior that needs explaining here's the original invoice here's the payment that
was applied to the invoice on this row and here's the credit memo and they're all in a list
right now but you see what quickbooks online is telling you in these two little transactions here
is that quickbooks online recorded a transaction on the actual date that it happened not the date
that i recorded the trend not the date that the transaction happened the date that it was recorded
the date that it was recorded quickbooks online creates a payment transaction for the purposes
of applying the credit to the invoice you can double click and you can open up and you can see
that this invoice number one zero zero three had five hundred dollars worth of credit applied and
if you look at the advanced videos for managing this complex window receive payment you will see
that this is telling you this was the invoice and this was the credit memo and the check marks
were saying that we checked this credit memo to apply it to this invoice so this is a zero
dollar payment because quickbooks online has already applied the credit to the invoice
and that's the reason why the open invoice report
shows only fifteen hundred dollars remaining for invoice number three for candy
you