How to Create a Credit Memo in QuickBooks Online

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In this QuickBooks tutorial, you’ll learn how to create a credit memo and apply it to an invoice.

Quick Instructions:

Create credit memo

  1. Click the +New button
  2. Under CUSTOMERS click Credit memo
  3. Fill in the credit memo screen
  4. Click Save and Close

Apply credit memo

  1. Find the invoice the credit memo will be applied to
  2. Click the Receive Payment link to the right 
  3. Check off the invoice and the credit memo
  4. Click Save and Close

Keep reading for a complete walkthrough with screenshots:

What is a Credit Memo?

A credit memo is a “credit” that can be applied to an open or future invoice.

It’s like returning an item to a store and getting in-store credit. You don’t get your cash back but you can use the credit towards the purchase of something from that store.

In this example, I have a customer with an open invoice.

Customer with an open invoice in QuickBooks Online.

The customer has not yet paid for this invoice but I want to keep a record of it. To do that I’m going to create a credit memo to “pay” the invoice.

Let’s take a look at the invoice:

An invoice in QuickBooks Online.

The invoice shows that Angela Sanford purchased 1 unit of Hours for $125.

The credit memo will be the reverse of this.

The invoice increases the accounts receivable/income the credit memo will decrease both of those.

Create a Credit Memo

To create a credit memo click the + New button in the upper left corner.

Under CUSTOMERS click Credit memo.

Credit Memo in the + New menu in QuickBooks Online

You can also get to the credit memo creation screen from within a customer profile. Click the New transaction button on the right and select Credit memo from the drop-down menu.

Creating a credit memo from within a customer profile in QuickBooks Online.

I’m now going to fill in the credit memo with the same information as the invoice above. Then click the Save and Close button.

You can use a different PRODUCT/SERVICE in your credit memo. For example, you could create a “credit” product and use it when crediting customers. I prefer to use the same PRODUCT/SERVICE as the invoice.

Apply a Credit Memo

Once a credit memo has been created there’s one more step. To apply that credit memo to the invoice.

Below you can see my example invoice is Open and the credit memo is Unapplied.

A credit memo and matching invoice in QuickBooks Online.

To apply the credit memo to the invoice click the Receive Payment link to the right of the invoice.

The Receive Payment screen shows both Outstanding Transactions (open invoices) and Credits. 

I check off both the invoice and the credit memo then click Save and Close.

Applying a credit memo to an invoice in the Receive Payment screen in QuickBooks Online.

Back on the Sales page, the invoice status is now Paid and the credit memo is Closed.

Status of credit memo and invoice after applying the credit memo to the invoice.

If, in the future, you forget your invoice was “paid” with a credit memo it’s easy to figure that out. Open the invoice then click on the little blue payment made link under the Payment Status. It will open a pop-up showing the payment.

Find how an invoice was paid in QuickBooks Online.

Click on the Date and it will open the Receive Payment screen showing the Credit Memo that was used to “pay” this invoice.

You now know how to create a credit memo and apply it to an invoice in QuickBooks Online. 

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Below is a video if you prefer to watch a walkthrough.

If you have any questions about creating or applying credit memos in QuickBooks Online click the green button below to schedule a free consultation.

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This content is for information purposes only and should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Gentle Frog, LLC does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Gentle Frog, LLC does not warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers and viewers should verify statements before relying on them.

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