Credit notes¶
A credit note records an amount owed back on something you have already invoiced or been billed for: goods returned, a job cancelled, an overcharge on a tax invoice.
If you are registered for GST this is an adjustment note, and the ATO both requires one when a sale changes after it was invoiced and prescribes what it has to say. FairBooks fills in the required content for you.
You will find credit notes in the Sales area under Credit Notes.
The two kinds¶
| Type | Who it is for | What it can be applied to |
|---|---|---|
| Customer credit | You credit a customer | Their unpaid invoices |
| Supplier credit | A supplier credits you | Their unpaid bills |
You choose the type when you create the note, and it cannot be changed afterwards. Notes are numbered for you as CN-0001, CN-0002, and so on.
Creating a credit note¶
- Go to Credit Notes and click New Credit Note.
- Choose the Type, then the Customer or Supplier it applies to.
- Set the Issue date.
- Optionally record the Original invoice or bill it relates to, for example
INV-0042. This is printed on the note. - Enter a Reason for the adjustment, such as "Goods returned, damaged in transit". This is required. The ATO expects an adjustment note to say why the adjustment was made.
- Add the lines being credited.
- Add any Notes you want to appear on the document, then click Create credit note.
Lines¶
Each line takes a Description, Qty, Unit price and an Account from your chart of accounts. The account list is narrowed to the side you are crediting: revenue accounts for a customer credit, expense and cost of sales accounts for a supplier credit. Coding the line to the same account the original document used keeps the reversal tidy in your reports.
If you are registered for GST, each line has a Price includes GST tick and a GST-free tick, the same as an invoice. The totals show the subtotal, the GST adjustment and the Total credit.
Issuing it¶
A new note starts as a Draft. A draft is not a tax document yet, so it cannot be applied to anything. Open it and click Issue when you are ready.
| Status | What it means |
|---|---|
| Draft | Still being prepared. Editable. |
| Credit available | Issued, with credit left to use. |
| Fully applied | All of the credit has been used. |
Only a draft can be edited. Once a note is issued it is a document your customer may already be holding, so if something is wrong, delete it and issue a new one.
Using the credit¶
An issued note sits as available credit until you do something with it. There are three possibilities:
| What you do | What happens |
|---|---|
| Apply it to an invoice or bill | It settles that much of the debt. If it covers the whole outstanding amount, the invoice or bill is marked paid, with the credit note as the payment reference. |
| Record a refund | You are recording that the money actually moved. |
| Nothing yet | The credit sits on account and has no effect on your BAS or Profit and Loss. |
Both actions live under Where the credit went on the note, and every one of them is listed there with its date and amount.
Applying it to an invoice or bill¶
Click Apply to invoice (or Apply to bill), then choose from that contact's unpaid documents. Each option shows what is still outstanding on it. Set the amount and the date the adjustment takes effect.
You can spread one note across several invoices or bills, and you can apply less than the full amount. Whatever is left stays as available credit.
To undo one, click the bin icon beside it. That returns the credit and un-settles the invoice or bill, including removing the expense a paid bill created. This is deliberately reversible: applying a credit is a bookkeeping entry rather than a payment you have received.
An invoice or bill that is already paid cannot take a credit. Record a refund instead.
Recording a refund¶
Use Record refund when cash genuinely changed hands, and set the date it moved.
If the refund went through a bank account you import, you can reconcile it instead of entering it here, which links the two records together. A refund that came from a reconciled bank line cannot be removed from this screen: unmatch the bank line and it will be undone.
When it reaches your BAS¶
FairBooks reports GST on a cash basis, so a credit note only affects a BAS period once the credit is actually used:
- A refund lands in the period the money moved.
- Credit applied to an invoice or bill lands in the period that invoice or bill is paid in full. Until then, neither the sale nor the credit is in your BAS.
- An issued but unused note does nothing at all.
That second point is the one worth understanding. Say you issue a $44 credit against a $110 invoice and the customer pays the remaining $66:
- While the invoice is unpaid, nothing appears in your BAS. Neither half of the story has happened yet.
- When the $66 arrives, the invoice is paid, and that period shows sales of $66 and GST of $6.00. The $110 sale and the $44 credit land together and net out.
A partly used note contributes only its share, worked out from the amount applied against the note's total.
Note
An adjustment is a new GST event in the period it arises, not an edit of the original tax invoice. A BAS you have already lodged stays as lodged, which is exactly why the credit note is its own document instead of a change to the invoice.
The document¶
Download the note as a PDF with PDF. It is headed ADJUSTMENT NOTE if you are registered for GST and CREDIT NOTE if you are not, mirroring how invoices are headed Tax Invoice or Invoice. It carries your business details and ABN, the recipient, the issue date, the reason, the original document and the GST adjustment, which is what the ATO requires an adjustment note to show.
For a customer credit, click Email to send it to the customer. This one matters: your customer needs to hold the adjustment note before they can adjust their own GST. Emailing a draft issues it at the same time. Supplier credits cannot be emailed from FairBooks, since those are issued to you rather than by you.
If you are registered for GST, add your ABN in Settings before issuing a customer credit, since the ATO requires it on an adjustment note. From $1,000 the note also has to identify the recipient, so make sure the customer's ABN is on file.
Refunds on your bank statement¶
When you reconcile, credit note refunds turn up as match suggestions labelled like CN-0001 (refund). Which notes are offered depends on the direction of the money:
- Money out of your account: customer credits, because you are refunding a customer.
- Money in: supplier credits, because a supplier is refunding you.
Matching the line records the refund on the note. Unmatching it takes the refund back off and returns the credit.
Deleting a credit note¶
Deleting a credit note moves it to the Rubbish Bin, where you can restore it within 30 days. See Data and record keeping.
A note with any of its credit applied or refunded cannot be deleted. Undo those first, so the invoices and bills it touched go back to how they were. If one of them is a refund that came from a bank line, unmatch the line to undo it.