Credit note (accounting entry)

An accounting credit is the accounting entry for a credit issued to a customer. It is deducted from the customer’s receivable, as well as from the corresponding revenue and collected VAT.

Example

A credit of 500 € (excluding tax; 600 € including tax) is recorded: the customer’s account balance decreases by 600 €, revenue by 500 €, and collected VAT by 100 €.

Why It’s Important

A properly recorded and reconciled credit prevents the original invoice from remaining marked as due and being sent out for collection by mistake.

For more information: the Order-to-Cash Guide.

See also: accounts receivable, account coding, accounts receivable accounting.