QuickBooks Online: How to add and apply a Credit Memo

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In QuickBooks you can use a credit memo if a customer paid more they owe you, returned a product, requested a refund, or if you’re giving them store credit. Once created you can apply the credit memo to an open invoice for that customer at any time.

Credit memo instructions:

  1. Create a new credit memo
    1. Click on +New in the upper left hand corner
    2. Choose credit memo in the option list
    3. Fill in the credit memo:
      1. Customer name
      2. Date
      3. The product/service is “bad debt”, using this will ensure you see the amount ($$) of the credit memo as a separate line on your profit and loss
      4. The quantity is 1
      5. The rate is the amount ($$) that you wish to write off for a client
    4. Choose “save and close” (if necessary, click the dropdown on the green button to change it from save and send to save and close)
  2. Apply that credit memo to the outstanding invoices you wish to write off
    1. Click on +New in the upper left hand corner
    2. Choose receive payment in the option list
    3. Fill in the payment form:
      1. Customer name
      2. Date
      3. (scroll down a bit)
      4. Check the boxes to the left of the outstand invoices you wish to write off, the payment box will fill with the amount ($$) that matches the open balance for that invoice.
      5. (scroll down a bit)
      6. In the credit memo section, the credit memo should be checked and the amount ($$) in the payment box should be equal to the amount in the open balance column
      7. (scroll down a bit)
      8. Verify that the bold number in the upper right hand corner is $0
      9. Save and close
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2 Responses

  1. Thank you for this post.
    My only challenge is the use of “bad debt” as the product/service on the CM? It is not a bad debt! Is there another product/service that we could use that doesn’t make the transaction look so negative and that reflects the true purpose of the entry on the company books/financials? It is also not a write-off for anyone? I just don’t understand, from an accounting standpoint, how this would be considered a good practices routine when a client overpays etc.
    Thank you for your guidance & help 🙂
    Janice

    1. Hi Janice,
      You don’t have to use”bad debt” as the product/service on the CM. You can create a product/service and give it whatever name you’d like like then map it to an income/expense account that makes sense to you.
      We do have a post on creating and editing products/services that may help you out.
      Hopefully this answers your questions! If you need any help with this you can schedule a 15 minute zoom session with Rachel to walk you through the process: https://www.gentlefrog.com/meeting/
      -Jess

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