Receivables lets you fully or partially credit your invoices while it automatically creates all the accounting reversal entries for you. You can use the Credit Transactions window or AutoInvoice to create your credit memos. The accounting is always the same whether the credit memo is imported through AutoInvoice or entered manually using the Credit Transactions window.

The next several sections provide examples of how Receivables accounts for full and partial credit memos against different types of invoices.

Sample Invoice 102 - Bill in Advance

On 1/1/XX an invoice is created with these details:

• Invoice Number = 102

• Invoice Date = 1/1/XX

• Invoice Amount = $100

• Duration = 5 months

• Invoicing Rule = Bill In Advance

• Accounting Rule = Fixed Amount as follows:

  • Period 1 = $20

  • Period 2 = $20

  • Period 3 = $10

  • Period 4 = $30

  • Period 5 = $20

  This table shows the accounting entries for invoice 102 over the five accounting periods:

  ACCOUNT	Debit	Credit	GL Date	Period Status
  Accounts Receivable	100.00		1/1/XX	Open
  Unearned Revenue	20.00		1/1/XX	Open
  Unearned Revenue		100.00	1/1/XX	Open
  Revenue		20.00	1/1/XX	Open
  Unearned Revenue	20.00		2/1/XX	Not Opened
  Revenue		20.00	2/1/XX	Not Opened
  Unearned Revenue	10.00		3/1/XX	Not Opened
  Revenue		10.00	3/1/XX	Not Opened
  Unearned Revenue	30.00		4/1/XX	Not Opened
  Revenue		30.00	4/1/XX	Not Opened
  Unearned Revenue	20.00		5/1/XX	Not Opened
  Revenue		20.00	5/1/XX	Not Opened

This example describes four separate cases:

• Case 1 - A full credit memo entered against the invoice.

• Case 2 - A partial credit memo entered against the invoice, with credit method for rules set to Prorate.

• Case 3 - A partial credit memo entered against the invoice, with credit method for rules set to LIFO.

• Case 4 - A partial credit memo is entered against the invoice on 6/1/XX, with credit method for rules set to UNIT.

Case 1

A full credit memo is entered on 2/15/XX against invoice 102 with these details:

• Credit memo date = 2/15/XX

• Credit memo amount = $100

This table shows the reverse accounting entries after the credit memo is applied:

Case 2

A partial credit memo for $65 is entered on 2/15/XX against invoice 102, with credit method for rules set to Prorate. The credit memo details are:

• Credit Memo Date = 2/15/XX

• Credit Memo Amount = $65

This table shows the partial reverse accounting entries after the credit memo is applied, with the computations used to derive the partial amounts:

Case 3

A partial credit memo for $65 is entered on 2/15/XX against invoice 102, with credit method for rules set to LIFO. The credit memo amount is fully applied by Period 2. The credit memo details are:

• Credit Memo Date = 2/15/XX

• Credit Memo Amount = $65

This table shows the partial and full reverse accounting entries after the credit memo is applied:

Case 4

A partial credit memo for $65 is entered on 6/1/XX for 8 units against invoice 102, assuming that this invoice consists of 10 units with a value of $10 each for a total of $100. This credit memo is entered with credit method for rules set to UNIT. The credit memo details are:

• Credit Memo Date = 6/1/XX

• Credit Memo Amount = $65

Receivables derives the Amount to Credit in each period by multiplying the Net Unit Price for each period by the number of units to credit (8 in this example). Receivables derives the Net Unit Price by the following formula:

Net Unit Price = (Invoice Amount in this period - any previous credit memos in this period) / Original invoice quantity

This table shows the Net Unit Price for each period:

This table shows the Amount to Credit (Net Unit Price * Units to Credit) in each period as a result of the above calculations:

This table shows the partial reverse accounting entries after the credit memo is applied:

Sample Invoice 103 - Bill in Arrears

On 1/1/XX the following invoice is created.

• Invoice Number = 103

• Invoice Date = 5/1/XX

• Invoice Amount = $100

• Duration = 5 months

• Invoicing Rule = Bill In Arrears

• Accounting Rule = Fixed Amount as follows:

  • Period 1 = $20

  • Period 2 = $20

  • Period 3 = $10

  • Period 4 = $30

  • Period 5 = $20

  This table shows the accounting entries for invoice 103 over the five accounting periods:

  ACCOUNT	Debit	Credit	GL Date	Period Status
  Unbilled Receivable	20.00		1/1/XX	Open
  Revenue		20.00	1/1/XX	Open
  Unbilled Receivable	20.00		2/1/XX	Not Opened
  Revenue		20.00	2/1/XX	Not Opened
  Unbilled Receivable	10.00		3/1/XX	Not Opened
  Revenue		10.00	3/1/XX	Not Opened
  Unbilled Receivable	30.00		4/1/XX	Not Opened
  Revenue		30.00	4/1/XX	Not Opened
  Accounts Receivable	100.00		5/1/XX	Not Opened
  Unbilled Receivable	20.00		5/1/XX	Not Opened
  Unbilled Receivable		100.00	5/1/XX	Not Opened
  Revenue		20.00	5/1/XX	Not Opened

This example describes four separate cases:

• Case 1 - A full credit memo entered against the invoice.

• Case 2 - A partial credit memo entered against the invoice on 6/1/XX, with credit method for rules set to Prorate.

• Case 3 - A partial credit memo entered against the invoice on 6/1/XX, with credit method for rules set to LIFO.

• Case 4 - A partial credit memo is entered against the invoice on 6/1/XX, with credit method for rules set to UNIT.

Case 1

A full credit memo is entered on 6/1/XX against invoice 103 with these details:

• Credit memo date = 6/1/XX

• Credit memo amount = $100

This table shows the reverse accounting entries after the credit memo is applied:

Case 2

A partial credit memo for $65 is entered on 6/1/XX against invoice 103, with credit method for rules set to Prorate. The credit memo details are:

• Credit Memo Date = 6/1/XX

• Credit Memo Amount = $65

This table shows the partial reverse accounting entries after the credit memo is applied, with the computations used to derive the partial amounts:

Case 3

A partial credit memo for $65 is entered on 6/1/XX against invoice 103, with credit method for rules set to LIFO. The credit memo details are:

• Credit Memo Date = 6/1/XX

• Credit Memo Amount = $65

This table shows the partial and full reverse accounting entries after the credit memo is applied:

Case 4

A partial credit memo for $40 is entered on 6/1/XX for 8 units against invoice 103, assuming that this invoice consists of 10 units with a value of $10 each for a total of $100. This credit memo is entered with credit method for rules set to UNIT and the Last Period to Credit set for the last period of the invoice. The credit memo details are:

• Credit Memo Date = 6/1/XX

• Credit Memo Amount = $40

Receivables derives the Amount to Credit in each period by multiplying the Net Unit Price for each period by the number of units to credit (8 in this example). Receivables derives the Net Unit Price by the following formula:

Net Unit Price = (Invoice Amount in this period - any previous credit memos in this period) / Original invoice quantity

This table shows the Net Unit Price for each period:

This table shows the Amount to Credit (Net Unit Price * Units to Credit) in each period as a result of the above calculations:

This table shows the partial reverse accounting entries after the credit memo is applied:

Sample Invoice 104 - Three Payment Installments

On 1/1/XX an invoice is created with these details:

• Invoice Number = 104

• Invoice Date = 1/1/XX

• Invoice Amount = $100

• Payment Terms = 3 Installments as follows in this table:

  Due Date	Amount
  2/1/XX	$50
  3/1/XX	$25
  4/1/XX	$25

This table shows the payment schedules for these installments:

This example describes three separate cases:

• Case 1 - A partial credit memo entered against the invoice with the credit method for split terms set to Prorate; a partial payment entered against the invoice; another partial credit memo entered against the invoice.

• Case 2 - A partial credit memo entered against the invoice with the credit method for split terms set to LIFO; a partial payment entered against the invoice; another partial credit memo entered against the invoice.

• Case 3 - A partial credit memo entered against the invoice with the credit method for split terms set to FIFO; a partial payment entered against the invoice; another partial credit memo entered against the invoice.

Case 1

There are three transactions against invoice 104: A partial credit memo for $45 with the credit method for split terms set to Prorate; a partial payment of $20; another partial credit memo for $20.

Transaction 1

On 1/1/XX a credit memo for $45 is entered against invoice 104. The credit method for split terms is set to Prorate. The credit memo details are:

• Credit Memo Date = 1/1/XX

• Credit Memo Amount = $45

To calculate the amount credited per payment schedule, Receivables uses the following formula:

Amount Credited = (Credit Memo Amount/Total Remaining Amount Due) * Amount Due Remaining on this installment

This table shows the calculations for the amount credited for each installment:

This credit memo affects the payment schedules of invoice 104, as shown in this table:

Transaction 2

On 1/15/XX a payment is received for $20. This payment affects the payment schedules of invoice 104, as shown in this table:

Transaction 3

On 1/16/XX another credit memo for $20 is entered against invoice 104. The credit memo details are:

• Credit Memo Date = 1/16/XX

• Credit Memo Amount = $20

This credit memo affects the payment schedules of invoice 104, as shown in this table:

Case 2

There are three transactions against invoice 104: A partial credit memo for $45 with the credit method for split terms set to LIFO; a partial payment of $20; another partial credit memo for $20.

Transaction 1

On 1/1/XX a credit memo for $45 is entered against invoice 104. The credit method for split terms is set to LIFO. The credit memo details are:

• Credit Memo Date = 1/1/XX

• Credit Memo Amount = $45

This credit memo affects the payment schedules of invoice 104, as shown in this table:

Transaction 2

On 1/15/XX a payment is received for $20. This payment affects the payment schedules of invoice 104, as shown in this table:

Transaction 3

On 1/16/XX another credit memo for $20 is entered against invoice #104. The credit memo details are:

• Credit Memo Date = 1/16/XX

• Credit Memo Amount = $20

This credit memo affects the payment schedules of invoice 104, as shown in this table:

Case 3

There are three transactions against invoice 104: a partial credit memo for $45 with the credit method for split terms set to FIFO; a partial payment of $20; another partial credit memo for $20.

Transaction 1

On 1/1/XX a credit memo is entered against invoice 104. The credit method for split terms is set to FIFO. The credit memo details are:

• Credit Memo Date = 1/1/XX

• Credit Memo Amount = $45

This credit memo affects the payment schedules of invoice 104, as shown in this table:

Transaction 2

On 1/15/XX a payment is received for $20. This payment affects the payment schedules of invoice 104, as shown in this table:

Transaction 3

On 1/16/XX another credit memo for $20 is entered against invoice 104. The credit memo details are:

• Credit Memo Date = 1/16/XX

• Credit Memo Amount = $20

This credit memo affects the payment schedules of invoice 104, as shown in this table:

Credit Memos Against Invoices Against Commitments

Below are some examples that show the accounting entries that are created when you credit invoices against commitments.

Example 1 - A Full Credit Memo Against an Invoice Against a Deposit

This example includes three transactions.

Transaction 1

A deposit is entered for $1000. The accounting entry is described in this table:

Transaction 2

An invoice for $400 is entered against this deposit. The accounting entries are described in this table:

Receivables automatically creates a receivables adjustment for the invoiced amount. This adjustment is created against the invoice resulting in an amount due in Accounts Receivable of $0. (In this example, the $400 does not include tax and freight). Therefore, there is no balance due for the $400 invoice, as it has drawn against the $1000 deposit in lieu of payment of the invoice.

Transaction 3

A credit memo for $400 is applied to the $400 invoice. The accounting entries are described in this table:

The first accounting entry reverses the adjustment entered in the previous step. The second accounting entry reverses the invoice entered in the previous step, leaving a deposit balance of $600.

Example 2 - A Full Credit Memo Against an Invoice Against a Guarantee

This example includes three transactions.

Transaction 1

A guarantee is entered for $1000. The accounting entry is described in this table:

Transaction 2

An invoice for $400 is entered against this guarantee. The accounting entries are described in this table:

Receivables automatically creates a receivables adjustment for the invoiced amount. This adjustment is created against the guarantee. Therefore, an outstanding amount of $400 exists for this invoice and the guarantee has an outstanding balance of $600.

Transaction 3

A credit memo for $400 is applied to the $400 invoice. The accounting entries are described in this table:

The first accounting entry reverses the adjustment entered in the previous step. The second accounting entry reverses the invoice entered in the previous step.

Example 3 - A Credit Memo Against an Invoice Against a Deposit

This case shows the accounting entries that are created when you apply an invoice to a deposit and the invoice amount is greater than the deposit. It also shows the entries that are created when you apply a partial credit memo to the invoice.

Transaction 1

A deposit is entered for $100. The accounting entry is described in this table:

Transaction 2

An invoice for $220 is entered against this deposit. The accounting entries are described in this table:

The current outstanding balance for the invoice is $120.

Transaction 3

A credit memo for $150 is applied to the invoice. The accounting entries are described in this table:

Receivables automatically creates a receivables adjustment for $30 against the invoice to increase the outstanding balance to $150. The second accounting entry is for the $150 credit memo, leaving a deposit balance of $30.

Example 4 - A Credit Memo Against an Invoice Against a Guarantee

This case shows the accounting entries that are created when you apply an invoice to a guarantee and the invoice amount is greater than the guarantee. It also shows the entries that are created when you apply a partial credit memo to the invoice.

Transaction 1

A guarantee is entered for $100. The accounting entry is described in this table:

Transaction 2

An invoice for $220 is entered against this guarantee. The accounting entries are described in this table:

The current outstanding balance for the invoice remains at $220.

Transaction 3

A credit memo for $150 is applied to the invoice. The accounting entries are described in this table:

Receivables automatically creates a receivables adjustment for $30 against the guarantee to increase the outstanding balance to $30. The current outstanding balance for the invoice is $70.

Credit Memos Against Invoices Under Collectibility Analysis

Below is an example that shows the accounting entries that Receivables creates when you credit invoices under collectibility analysis.

For more information, see: Event-Based Revenue Management.

Example 1 - Partial Credit Memos plus Payments

An invoice is imported for $750.

The invoice has 3 lines: Line 1 is $200, Line 2 is $450, and Line 3 is $100. Line 1 is associated with a nonstandard 90-day refund policy, and Line 3 is associated with a 120-day cancellation provision.

In addition, you have granted an extended payment term to the customer, and you have set the Use Invoice Accounting for Credit Memos profile option to Yes.

Transaction 1

The accounting entry is described in this table:

Transaction 2

You apply a $300 receipt against the invoice, 45 days after the invoice date.

Based on the weighted average formula, Receivables applies $80 to Line 1, $180 to Line 2, and $40 to Line 3.

• Receivables cannot recognize revenue for Line 1 or Line 3 due to the related contingencies. Receivables records payments to Line 1 and Line 3 as amounts that are pending revenue recognition at a later date.

• Receivables can recognize revenue only for Line 2.

The accounting entry is described in this table:

The total amount due on this invoice is now $450. The unearned revenue amount on this invoice is $570.

Transaction 3

Then, you apply a credit memo for $200 against this invoice.

This invoice has a combination of payment-based and time-based contingencies. Therefore, the balance of the credit memo is not prorated between the Unearned Revenue and Revenue accounts. Instead, Receivables credits the Receivables account and debits the Unearned Revenue account for the full amount of the credit memo.

The accounting entry is described in this table:

The total amount due on this invoice is now $250. The unearned revenue amount on this invoice is $370.

Transaction 4

After 90 days pass, the Revenue Contingency Analyzer runs and identifies that the refund policy has expired. The Revenue Contingency Analyzer initiates revenue recognition for the amount of the receipt that you previously applied to Line 1.

The accounting entry is described in this table:

The total amount due on this invoice is still $250. However, the unearned revenue amount on this invoice is $290.

Transaction 5

Later, you apply a credit memo for $150 against this invoice.

This invoice still has a combination of payment-based and time-based contingencies. Therefore, Receivables credits the Receivables account and debits the Unearned Revenue account for the full amount of the credit memo.

The accounting entry is described in this table:

The total amount due on this invoice is now $100. The unearned revenue amount on this invoice is $140.

Transaction 6

After 120 days pass, the Revenue Contingency Analyzer runs and identifies that the cancellation policy has expired. The Revenue Contingency Analyzer initiates revenue recognition for the amount of the receipt that you previously applied to Line 3.

The accounting entry is described in this table:

The total amount due on this invoice is still $100. However, the unearned revenue amount on this invoice is $100.

Transaction 7

Finally, you apply a $100 receipt against the invoice.

Based on the weighted average formula, Receivables applies $27 to Line 1, $60 to Line 2, and $13 to Line 3. At this point, all time-based contingencies have expired.

The accounting entry is described in this table:

The invoice is now fully paid and no more unearned revenue exists on this invoice.