ZUGSEIL Bookkeeping Tools (BKT)

Bills - Invoices

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Credit notes

A credit note is a special form of invoice - it is also referred to as a reverse invoice.  

A credit note is normally based on a sales process that has taken place beforehand. A seller/supplier has sold his own products/merchandise or services to a buyer/customer. As long as the products / merchandise or services delivered by the seller / supplier are not objected to by the customer, the sales process is thus completed.

However, there are situations when defective or even wrong goods are delivered to the customer or the goods are damaged in transit or the customer does not like the goods. The reasons for this can be manifold. In these cases, the goods are usually returned by the buyer/customer to the seller/supplier in the form of a return of goods.

If the seller/supplier receives a return of goods for the above-mentioned reasons, the booking of the original sale of the seller's own products / merchandise or services must be reversed to the extent that the customer returned the "defective" / "wrong" / "don't like" goods.

In this case, the Seller shall issue a credit note for the Customer related to the return. A credit note must contain at least the following information:

1. name and address of the recipient and supplier of the service

2. tax number or VAT number of the supplier

3. date of issue

4. consecutive invoice number

5. description of the goods or services

6. date of delivery or service

7. payment broken down according to tax rates

8. tax rate and tax amount

9. (reference to the obligation to keep records in the case of taxable services)

10. very important: the indication of credit note

Example:

The company SteelPipe AG sends 10 steel pipes to Max Mustermann. For one steel pipe, SteelPipe AG charges a sales price of 1,250.00 EUR plus 19% VAT, so that the invoice amounts to 14,875.00 EUR. SteelPipe AG makes the following posting for this target sale. Thus, the following postings have been made:

Account	+/-	Value
Debitor	debit	14.875,00 EUR
Revenue	credit	12.500,00 EUR
Sales tax	credit	2.375,00 EUR

Max Mustermann now notices that the weld seam of a steel pipe is cracked and sends the steel pipe back to SteelPipe AG. When SteelPipe AG receives the return shipment, the employees create the credit memo for the defective pipe on the same day, making the following entries:

Account	+/-	Value
Debitor	credit	1.250,00 EUR
Revenue	debit	1.487,50 EUR
Sales tax	debit	237,50 EUR

The original posting record is simply reversed and the values of the returned goods are added to it.

Summary

When a credit note is created (for example, for a returned defective product), this credit note must be preceded by a business transaction (in this example, the sale of the company's own products / merchandise or services).  

Manual credit notes

In ordinary business transactions, price reductions, for example due to material defects, are often referred to as credit notes. This means that a manual credit note can also be created retrospectively for goods that have been sent without the need for a return shipment. A manual credit note contains manual items. For the positions the booking accounts and the tax rates must be indicated, so that also for these credit notes the account bookings can take place.

Manual credit notes can thus also be used to credit services performed in advance by the service provider to the service recipient. In this case, the credit note acts like a kind of work payment.