what if a customer wants to pay less for an invoice that you sent them in that case you
would have to make a credit memo if you have any questions about this topic you can leave
them in the comment 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 click like and don't forget to subscribe to get updates on
new videos that come out all the time a credit memo is the document you would make if a customer
wants a return or a refund from a previous invoice making the credit memo requires the
exact same steps as making the invoice it has the opposite effect of an invoice in every way
you must use the same items or the same income accounts that were on the original invoice that
is being credited so on the original invoice when you created it at the beginning the income went up
because the invoice indicated that you earned income and the balance of the customer in the
accounts receivable records also increased by the same amount of that very same invoice
so therefore making a credit memo must decrease the balance and accounts receivable because the
customer will owe you less and of course if the customer owes you less that means you actually
earned less income or never really earned the income for that credit in the first place so
therefore making the credit memo would make that very same income account decrease please note you
must apply the credit memo to an open invoice usually credit memos are applied at the moment
that you are recording receiving the payment for that invoice so for example let's imagine on March
20 we gave candy three video hours credit for invoice number 11 that we made for candy back
on January 21 well the video income will decrease because we're making a credit memo for an invoice
that had video on it and of course Candy's balance as well as the accounts receivable
account will decrease by the amount of that particular credit memo and the amount in this
case will be $900 because that's the money amount of three video hours that we are crediting now of
course these are the numbers in the trial balance before you record our first credit memo but after
you record the $900 credit memo to candy accounts receivable will decrease by 900 and become 20 3040
and video income will also decrease by that same 900 and become 47,000 100 and you can rewind the
video to this point right after you record the credit memo to make sure your numbers in your
trial balance match what you see here so let's go ahead and record the March 20 credit memo to
do this you open the new transaction menu either click on the top left where it says new or if you
don't have that go to the top right and click the plus sign close to the cogwheel either one will
open the same choices in the new transaction menu we go all the way across to the customer
column and we choose credit memo now we know the date is March 20 of 2017 in our little story
and of course the customer is candy and it's three video hours so we're going to put video
and we're going to put three now here's the credit memo simple as creating the invoice
and trust me down here at the bottom there's a Save & close I think I can squeeze that up
here okay and save and close and now you can see the trial balance numbers are exactly as what we
expected after you check your trial balance you must also check your open invoice report you must
make sure that the credit memo that you just made shows up on the open invoice report and it should
stay there until it's applied to an invoice now usually credit memos get applied to invoices at
the moment the invoice is paid that's the moment the person is using the credit so let's imagine
on March 21 candy paid all of invoice number 12 from January 11th and that's the moment she
will use the credit we will apply the credit at the moment that you pay and both the credit and
the invoice will disappear from the open invoice report let's take a look at how to record it now
here we are in QuickBooks Online and let's click reports custom reports open invoice and if you
go to the bottom you see the credit memo that we just created and the only reason it's still
on the open invoice report is because it has not yet been applied now we're going to pay March 21
we're going to pay off that invoice so we click the plus sign we go all the way over to receive
payment and we make the date March 21 of 2017 in our little story the customer is candy and
as soon as you select candy we'll see not only all of her open invoices show up but if you
scroll down a little further any unapplied credit memo will show up now what we will do is we will
click this invoice and we will click this credit memo by checking both of them in the margin you
will see that we are telling quickbooks online that we are paying or at least kandi is paying
all of invoice number 12 some of which is coming from credit memo number 16 so when we scroll up
here we see that QuickBooks will assume that we will be depositing into our bank account $2,400
from kandi and again that's because we're telling QuickBooks all of invoice number 12 is being paid
and 900 of the credit is being applied so when we click Save and new and close this out you can go
back to the open invoice report and what do you see you no longer see the $900 in credit and you
also no longer see the invoice from January 11th because we told QuickBooks it has been completely
paid now you must know how to handle credit memos in this situation March 22nd we gave Betty one
editing our credit and we will decide later or at least Betty will decide later how to apply it and
which invoice and will go to but at the moment we create the credit memo again editing income will
decrease by 1:40 and accounts receivable will also decrease by 1:40 let's take a look at how
to record it so we go here and we click the plus sign and we go to credit memo and again this is
March 22nd of 2017 in our little story this time it's Betty and we're only giving her one editing
our credit so the amount of the as you can see is a hundred and forty dollars and just like
last time when we click Save and close we can come back to the open invoice report and we see
that this hundred and forty dollars has not yet been applied it simply lowers Betty's balance now
without paying she wants us to apply the credit memo of a hundred and forty dollars to invoice
number thirteen from March tenth and she wants us to apply that before she pays it and she wants to
see that it was applied on the statement that we will send her and we will discuss statements a few
videos later but right now on March 23rd she says show me you're applying that hundred and forty to
invoice number thirteen well in a case like that you have to make something called a zero dollar
payment and it's really really easy you click the plus sign you go to a receive payment now we're
not really receiving a payment from Betty on March 23rd of 2017 all we're really doing is applying
but you see it's the received payment window that allows you to apply so first you have to click the
invoice but if you do that QuickBooks will assume you're paying the entire invoice so after clicking
the check mark in the margin you then have to change the money amount to the money amount of the
credit because that's the amount you're decreasing the invoice then if you click the credit memo you
will see that both the credit memo and the invoice that it is applied to both say a hundred and forty
dollars and nothing else is checked and amount received stays zero that's all you're doing on
March 23rd because only the receive payment window can apply a credit to an invoice now
when we click Save and we close it out you can come back to the open invoice report and see the
hundred and $40 credit is gone and you can see the invoice from March 10th has decreased to $2,100