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Quickbooks Tutorial – How to Process a Credit

In this tutorial, we’re going to talk all about credits, how to process a credit and what a credit is. So, in a perfect world, if you’re running your small business, you would never run into credits right? You would serve your customers, your customers would always be happy and smiley, nothing would ever go wrong, there would never be refunds, there would never be disputes, there would never be issues and we would live in utopia. In reality, sometimes you’re actually going to have to issue a credit to a customer. Let’s pretend that you’re a plumber and you’ve invoiced your client for some work. And then between your technician, the client, yourself as the owner, you realized we charged this person $200 but we actually we really only think that it should be $125. And so, what are you going to do if the invoice has already been issued? How do you make sure that you don’t get yourself into a whole bunch of problems or have this lingering balance out there forever that makes it look like the customer still owes you money when you guys have kind of agreed that there’s not.

It’s important to remember that credits can be full credits or can be partial credits. So really nothing more to that concept other than you know if you charge someone a $100, you might decide that we’re gonna give a credit of $1, $2, $3 or the full $100. So your full versus partial is really just how much of the credit you’re going to apply. So don’t worry too much about how many of the dollar amounts are in there. We’re going to walk you through a step-by-step approach of what you need to do and it’s just going to be the dollar amount that will change if it’s full versus a partial credit in there. So if you’re ready let’s dive in. I’m going to walk you through the steps we’re going to do to actually apply a customer credit.

Now I’m using Quickbooks desktop. You might be using a different version, you might be using Quickbooks Online. The specific version isn’t going to matter as much as the concept and the process they’re going to walk through. So Quickbooks is forever going to be changing and updating in different versions. I want you to watch this for the overall concept and the process of what we’re going through and on’t get too hung up if you have to press a slightly different button. So this is the main home screen that we’re going to see on Quickbooks. And what we want to do is a credit. So we’re actually going to go right down here to this item that says, “Refund and Credits”. Now if your version doesn’t have something like that, what you’re going to want to think is, a credit has something to do with customers so we could either double check on here and it’ll take us to where we’re going to enter the credit memo. Or the other way that you can access the exact same screen is you’d go under, “Customers” and you’re going to scroll down here until you see something that has to do with credit memo or refund. And if I double click on it, you’re gonna see that it actually brings me to the exact same screen.

Now this is a good chance to talk about the distinction between a credit versus a refund. In day-to-day language, we refer to them as being the exact same but in bookkeeping lingo, typically a refund is going to involve giving them actual cash. It’s going to be that they’ve already paid the invoice and you’re having to give them money back. Whereas a credit is something where you have invoiced them and you are just saying, okay you don’t owe us that much money anymore but there’s not going to be anything that runs through a bank account.

So this is going to be an example of what we call a credit. Remember with a refund, there’s going to be cash going out the door and through your bank account. A credit is just kind of forgiveness on an invoice that you had built them for. So, let’s go under here and let’s pretend that you have a credit for let’s say, Adwinco. So this is gonna be a list of your customers. Obviously your customers will look a little different. You navigate over here and get a little bit of the history. So we’re seeing that Adwin has an open balance where he owes us $2 254. And it turns out that we had some kind of an arrangement with Adwin and he said, you know what I’m not willing to pay $2 254 and I want a $1 000 off. So let’s go and look at what the previous invoice was. This is the $2 254 that he owes us money for. We notice it’s a pro workout and he actually purchased five of them and they were workouts, with Pro Hockey Stars, and it was a one-time project. So okay, interesting, good to know what it was that he purchased. And now we want to go ahead and give him a credit. So if you see up here this is going to bring us back to the refund credit button. So, I’m going to click on this and it brings us right back. So like we talked about, we could give him a full or a partial credit. We’re going to go down here and we’re going to say it was for a Pro Workout and it’s going to populate that for us. And we believe it was a one-time project so we’ll populate some of this. Often times these details will be pre-populated for you. This system will actually automatically apply it but sometimes that doesn’t happen. We’re taking a quick look at Adwin’s account and you see that the GST got calculated down here. We still see that he owes us $2254 and that’s okay because we haven’t processed this transaction. So far all we did is we entered data but we didn’t actually submit it to the system. So nothing is actually changed in the records until we press this button down here to save and close. So, it’s going to ask one of three different options. So this $1000 we want to give it back but we want to apply it to an invoice., do we want to give it as a refund (and remember refund is going to be cash out the door), or do we want to keep it on file as some kind of a record that he could use for something else in the future. And Adwin said you know what, nope, I just want this taken off of the invoice and I’ll pay the remaining portions. And you can see here it auto applied it to the same invoice we were referring to, the $2254. And it gives us a chance just to look and check if it looks in order and for us it does. If for some reason it wasn’t, these are editable so we could click on here and we could change it and we could apply it to the specific invoices that we wanted. But in this case the system actually correctly anticipated our needs. We’re gonna click “Done” and we’re gonna see here is essentially our transaction.

Now, if you’re processing a credit, it’s probably something that you do pretty rarely or at least hopefully you do it fairly rarely. It’s not kind of a day-to-day transaction. So when you do something like this: 1) You probably have a customer that was slightly less than happy, 2) you’re processing a credit which is something you don’t do very often. So I would recommend that you do an extra step just to give yourself comfort that everything goy entered the way that you wanted to. So what you’re going to do to check that is to go under statements and go down just to one customer and you can select from the drop down menu. And we remember that ours was Adwin. And let’s just go and click this preview button which shows us its Adwin’s statement and we’re seeing that we had a balance for $2254. Additionally, wee see that the credit memo that we created is, “Credit Member 303”, so it looks like it has been saved and processed. We can see the amount that’s showing up on here and we’ll recall that this is including the different taxes, because we had entered a $1000. And we see the credit memo here is slightly higher. And at the very bottom it’s telling us how much Adwin now owes. So Adwin no longer owes us $2254. Adwin owes us $1124.

And so this is a document you can print or a good chance for you to just fully close the loop with the customer or just give everyone comfort to know that, yes the credit has been applied, we have fully taken care of this situation, and there’s no more open oops involved. And that is how you process a credit!

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