Credit Notes

Overview

Credit notes are used to record refunds or adjustments from customers. They can be created to handle returns of sold products, or general credit adjustments towards customer accounts.

Credit notes in Mezan can serve two distinct purposes:

  1. Return Credit Notes: These are created as returns/refunds for specific sales invoices. They reverse the accounting entries of the original invoice, including revenue recognition, inventory adjustments, and sales tax records. Return credit notes are the proper way to handle product returns or invoice corrections that need to be reported for tax purposes.
  2. General Credit Notes: These are issued to customers as general-purpose credits, typically for goodwill or compensation. These credits can be applied against future invoices as discounts, but do not affect sales tax reporting. They simply act as a credit balance that can offset future invoice amounts.

The credit notes' available balance can be used in two ways:

  1. Invoice Credit Settlement: The credit can be applied to reduce the amount due on invoices. Multiple credit notes can be applied to a single invoice, and a single credit note can be split across multiple invoices.
  2. Cash Refund: The credit amount can be refunded to the customer via a refund receipt, using up its balance. This is how cash refunds are processed in Mezan.

Fields of the Credit Note Form Explained

  1. Transaction Date: The date when the credit note is issued. This date determines when the accounting entries are recorded in the general ledger.
  2. Customer: The customer to whom the credit note is issued. For return credit notes, this must match the customer on the original invoice.
  3. Customer Account: The accounts receivable account associated with the customer. This is typically inherited from the customer's settings.
  4. Debit Account: The account that will be credited when this credit note is used. For return credit notes, this defaults to the revenue accounts of the returned products. For general credit notes, this can be any appropriate account (e.g., discounts given, compensation expense).
  5. Credit Amount: The total amount of the credit note.
  6. Inventory Store: For return credit notes, this specifies which store's inventory will receive the returned products. This field is only relevant for return credit notes with inventory-tracked products.
  7. Returned Products: Only part of the return credit notes. This section lists the products being returned from the original invoice, with the following details for each product:
    • Product: The product being returned, you can select which products to return from the original invoice, this cannot be modified.
    • Quantity: Number of units being returned, it cannot exceed the quantity of the original invoice.
    • Unit Price: The original unit price from the invoice, this cannot be modified.
    • Tax: The tax rate and amount that was charged on the original invoice, this cannot be modified.
    • Subtotal: The total amount being credited for this product. This is calculated automatically based on the unit price and quantity.
  8. Transaction Note: This is a text field to add any notes or description about the invoice. This is optional and purely for reference purposes. It does not show up on the printed invoice, only shows up on the general ledger and account statements of the related transactions.

Credit Note Other Properties

  1. Credit Note Reference: Automatically generated by Mezan based on your organization's counters settings. It is only generated after the credit note is confirmed for the first time. It is a unique identifier for the credit note in the organization.
  2. Confirmation Status: This is used to track the status of the credit note. It can be "Draft" or "Confirmed". This is a common approach across all transactions in Mezan. Confirmed state can influence if it shows up in reports by default or not, as reports can be filtered based on the confirmation status. Sales invoices are a special case in Mezan where it is not possible to "Unconfirm" an invoice once it is confirmed, due to regulatory requirements on Mezan as an entity that operates according to the regulations of Saudi Arabia. If you need to "remove" or amend a confirmed invoice, you must do so by performing the necessary refund operations to reverse all the transactions and creating a new invoice. Mezan provides a shortcut for invoices to perform a "quick refund" for confirmed invoices.
    1. Organization Member: This is the organization team member who created the invoice. It is automatically populated by the system based on the user who created the invoice. It is useful in reporting, permissions, and audit purposes.
  4. Returned Invoice: If the credit note is a refund credit note, this is a link to the original sales invoice that was used to create the credit note. It is automatically populated if the credit note was created via refund from a sales invoice.
  5. Linked Refund Receipts: To track the balance of the credit note of, credit notes can generate refund receipts if it was refunded in cash after the credit note was created. Refund receipts are generated via the "general receipts" transaction type in Mezan, linking back to the issuing credit note and customer record.
  6. Linked Invoice Credit: To track the usage status of the credit note. In Mezan, credit notes are separate records that can be created independently of invoices. A credit notes "available credit" can be linked to discount the due amount of the invoice. Similarly, refund receipts can be used to use the balance of the credit note.

Transactions Generated by Credit Notes

The transactions generated depend on the type of credit note:

Return Credit Notes

  1. Accounts Receivable: A debit entry on the customer's receivables account, to reduce the amount due from the customer.
  2. Debit Account: This is usually a contra-revenue account that will be debited for the returned products. This reduces the revenue recognized for the returned products.
  3. Tax: If taxable products are returned, a debit entry will be made on the sales tax account to reverse the tax recorded on the original invoice.
  4. Inventory: For inventory-tracked products:
    • A debit entry on the inventory account to reflect the return of the product to inventory
    • A credit entry on the cost of goods sold account to reflect the cost of the returned product

General Credit Notes

  1. Accounts Receivable: A credit entry on the customer's receivables account
  2. Debit Account: This is usually a contra-revenue account that will be debited for the general credit note. This reduces the revenue recognized towards the customer, usually incase of discounts granted to specific customers.
  1. Reporting Dimensions
  2. Custom Fields
  3. Custom Templates
  4. Inventory Tracking
  5. Attachments
  6. Comments
  7. Team Permissions
  8. Table Views