A Credit note reduces a customer's balance. Issue one when:
- a customer returned goods or you accepted a partial cancellation,
- you billed too much on an invoice and want to reduce the receivable without voiding the original document,
- you owe the customer a price adjustment after the invoice was already posted.
A credit note can be applied to one or more open invoices to reduce their balance, or left as unapplied credit for the customer to use against future invoices. The customer's AR balance reflects unapplied credit as a negative amount.
For an actual cash refund (you pay the customer back), see Refund receipts. A credit note alone is bookkeeping; a refund is money out.
You'll find Credit Notes under AR (Sales) → Payments & Credits → "Credit Notes".
Step by step
Browse credit notes
Open Credit Notes. Each row shows the number, date, customer, amount, applied amount, unapplied balance, and status (Draft / Posted / Void).
Create a credit note
- Click New Credit Note.
- Pick the Customer.
- Set the Date and (optionally) reference the originating Invoice for the audit trail.
- Add lines: Product/Service or Account, Description, Quantity, Unit price, Tax. New items can be created inline from the item search (Create «what you typed» → New item → Create & use).
- Save as a draft, or Save & Post.
Edit a draft
Drafts can be edited freely. Posted credit notes are read-only.
Post a credit note
Posting writes the journal:
- Debit Revenue (reducing income).
- Debit VAT Output (reducing tax liability).
- Credit the AR control account (reducing the customer's receivable).
The credit note's unapplied amount becomes the customer's open credit.
Apply a credit note to invoices
From a posted credit note, click Apply Credit. Tick one or more of the customer's open invoices and enter the amount applied to each — the total cannot exceed the credit note's unapplied balance. Applying reduces each invoice's open balance.
Unapply
Removes a specific allocation, freeing the credit to be applied elsewhere.
Refund the unapplied balance
If the customer wants the money back instead of credit, use Refund unapplied balance — this creates a linked Refund receipt that pays the cash out and reduces the credit note's unapplied balance.
Void a posted credit note
Reverses the journal, removes every allocation, and marks the credit note Void. The document number stays on the books for the audit trail. Only users allowed to void will see this action.
Print a PDF / Delete a draft
The PDF uses your active template. Only Drafts can be deleted.
How the journal looks
A JOD 117 credit note for a returned item that was originally invoiced with 17% VAT:
| Account | Debit | Credit |
|---|---|---|
| Revenue — Sales | 100.00 | |
| VAT Output | 17.00 | |
| AR — Customer control | 117.00 |
If the credit note relates to a stocked item being returned to stock (JOD 60 cost):
| Account | Debit | Credit |
|---|---|---|
| Revenue — Sales | 100.00 | |
| VAT Output | 17.00 | |
| AR — Customer control | 117.00 | |
| Inventory | 60.00 | |
| COGS | 60.00 |
Applying the credit note to a JOD 117 open invoice:
| Account | Debit | Credit |
|---|---|---|
| AR — Customer credit (note) | 117.00 | |
| AR — Customer invoice (allocation row) | 117.00 |
No cash moves — only the customer's open invoice is reduced; the unapplied credit note balance drops by the same amount.
When to use which AR adjustment
| Situation | Use this |
|---|---|
| Reduce an open invoice but no cash moves yet | Credit note (this page) |
| Refund cash to the customer | Refund receipt |
| Customer paid an advance you'll apply to future invoices | Retainer |
| Settle an unallocated payment against a new invoice | Payment allocation |
A credit note can sit as unapplied credit indefinitely — it doesn't have to be applied to a specific invoice. A refund receipt is the cash-out partner if you also need to actually pay the customer back.
Common mistakes
- "Customer has the credit but it didn't reduce a specific invoice." That's expected — credit notes default to unapplied. Click Apply Credit from the credit note to allocate the balance against one or more open invoices.
- "I voided the credit note but the customer's AR didn't go back to normal." Void reverses the books and removes every allocation. If invoices were settled via the credit note, they're now open again — re-allocate a payment or another credit.
- Period locked. Posting, voiding, and applying all need an open period — see Fiscal years and lock dates.
- Tax direction wrong. The credit note's tax line is the reverse of the original invoice's tax — VAT Output is debited, not credited. Picking the wrong tax code will make the VAT return look odd.
Behaviour and rules
- No cash impact. A credit note only moves AR — no bank account is touched. Use Refund unapplied balance (or a linked Refund receipt) if you also need to pay the customer back.
- Journal label. On the Journal entries page, the credit note's entry is labelled as a Credit Note and links back to the document.
- Period lock. Posting / voiding require the date's period to be open.
- Applied credits and aging. When applied to an invoice, the applied amount reduces that invoice's open balance and stops it from continuing to age.
- Missing buttons? Applying, unapplying, voiding, and posting each need the right access — ask your workspace administrator if an action you expect is missing.
Related
- Invoices — the document a credit note typically applies against.
- Refund receipts — cash refund of a credit.
- Customers — credit notes affect the customer's AR balance.
- Reports — A/R Aging Summary, sales reports.