do your customers sometimes return merchandise that they purchased on account
with an invoice well then you need to learn how to record returns from invoices and on account sales
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 click like
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a customer returns merchandise the effect on the account is the opposite of the sale the quantity
of the items returned will increase because you're getting back more items from the customer
the correct document to create when merchandise is returned from an invoice is a credit memo
so what happens when you return items for credit well sales income will decrease
by the sales price of the items returned and of course cost of goods sold will decrease
by the purchase cost what you paid for the returned items inventory asset will increase
because you actually have more inventory available for sale because customers just gave you inventory
and because they're returning it for credit accounts receivable the account that represents
what all customers owe will decrease they will owe you less because they return the item for credit
for example let's imagine on january 8th candy returned two bananas from the january 6th
invoice you must make sure that you put the same items on the credit memo that you put on
the original invoice so if this is the transaction what would be the price of the return well we sell
bananas for a hundred dollars each so 200 would be the amount of income that we are reversing
and what would be the cost of the return well we pay twenty dollars for each of those two bananas
so the amount that reverses in cost of goods sold as well as inventory would be forty dollars
so let's go ahead and record this credit memo we click new
and scroll down to the left column where it says credit memo
the date would be january 8th of 2020 the customer would be candy now the product or service would
be bananas and we're only returning two of them so that means we're on earning we're reversing
the two hundred dollars of income earned as we click save and close now if you click reports
trial balance you can see that the sales income went down and if you double click the number
and scroll down to the very last transaction that was recorded in sales income you can see
january 8th the credit memo that we made for candy scroll to the right decreased the income by 200
because we no longer have income for those two bananas because we didn't sell them
if we click reports trial balance and go to the cost of goods sold and double click you can
scroll down to the very last transaction in cost of goods sold and see that this credit memo
scroll to the right lowered the cost of goods sold to 640 because we didn't sell these two bananas
so we don't have the forty dollars in cost of goods sold click reports if you go back to the
trial balance you can see that the inventory asset has decreased by forty dollars if you double click
you can scroll down and you can see that the very last transaction recorded in the inventory asset
was january eighth this credit memo and you can see that it increased inventory by forty dollars
making the total of inventory asset 2860 and you can confirm that by clicking reports
inventory valuation detail and if you scroll to the bottom of the section of bananas
you can see this credit memo actually increased the quantity by two
because the customer gave us back two now the value of apples plus the value of bananas
equals the amount that we just saw in the inventory asset account in the trial balance
and what you must also do is check the open invoice report because even though our focus in
this course is managing inventory we should know a little bit about adjusting the customer's balance
so let's click reports open invoice and you can see for candy the net amount that she owes
is 300. in other words quickbooks automatically applied the 200 credit memo to the 500
invoice now if you open up this invoice by double clicking you will see the original amount was 500
that we recently recorded in this invoice in the prior video but the balance due
is only 300 because quickbooks online just applied the 200 credit that we just made
directly to this invoice so what went on well it used to be that you needed
to do one more step after you created a credit memo you used to have to apply the credit memo
to the invoice by making something called a zero dollar payment so now quickbooks does that for you
now let me explain clearly what just happened quickbooks online has a new feature as of may
2020 this new feature links the credit memo you just made to the existing invoices automatically
they do this by behind the scenes making what's called a zero dollar payment
that's what you would have had to do before they added this feature and you will see this zero
dollar payment that they made in the transaction list by customer so let's click reports and click
transaction list by customer and scroll all the way down i'm even going to come over here now
here's the invoice that we made for candy and here's the credit memo that we just recorded
the invoice is dated january 6 the credit memo is properly dated january 8th but what's this
this line here is what quickbooks online did behind the scenes just to be able to apply
this credit memo to this particular invoice this is something called a zero dollar payment
it's a payment that quickbooks records for zero dollars because the function of this
uh payment connects and links the credit memo that you just made to the invoice
and notice the date is may 18th not january 8th and that's because i'm recording this video on
may 18th of 2020 and quickbooks created this so quickbooks put whatever today's date is because
it's their computers over there on the internet i had no control over them creating this payment
now if you want to see what they did you could double click and you can see that this is simply
the same receive payment window that you learned about to record receiving payments from invoices
but the amount is zero because all they did was connect this credit memo to this invoice by
clicking the check marks by clicking the check marks for uh and then changing the um you know
you they change the amount to 200 so that you can see the credit memo is checked off as 200
applied and the invoice is checked off as being decreased by 200 and the amount received is zero
so this is what quickbooks online it's a transaction for zero dollars that simply serves
the function of applying this credit to this invoice and you would have to do this in the days
before the uh before quickbooks online did this for you but the net result let's leave without
saving the net result is that this 200 is applied to this 500 and that's why the open invoice report
shows only the net amount now please note something very important
if the credit is not applied to the one you want then you must reapply it yourself
that means you must open up the zero dollar payment and reapply the credit memo to the correct
invoice so we would have to go back to reports transaction list by customer scroll down and this
one that's created by quickbooks online we would have to double click and move the check mark to a
different invoice and make sure the amount stays zero now all i'm going to do is change the date
the date in real life which is the date quickbooks recorded the zero dollar payment
i'm going to change it to the date of the credit memo
and i highly recommend that you change the date of the receive payment that applies the credit memo
to the same date as the credit memo so i'm going to click save and new are you sure yes
and now when we go back to the transaction list by customer it looks a little more consistent it
looks like the date uh that we applied the credit memo is the same as the credit memo
now of course i would not want to get too sidetracked about receivable issues
in an inventory course but i think it's important to mention