A Credit Note or Credit Memo is a document used to adjust or rectify errors made in a sales invoice which has already

been processed and sent to a customer. If you have already sent an invoice to a customer but now need to provide a credit for that invoice, you would send them a Credit Note or Credit Memo. You can think of a credit note as a "negative invoice." Some examples of when you would use a Credit Note Unit price overcharged or over-billed : For example you issued an invoice for an item for $1100 when the correct price of the item should have been $1010 instead. Therefore you need to issue Credit Note to give a credit of $90 to your customer for the amount over-billed. Goods short shipped : You invoiced a customer for 10 units of your product but only shipped 9 units to them by mistake. The customer then calls you to say that 9 units are okay and does not want the shortfall item at the moment. Therefore you need to issue a Credit Note to credit your customer for the shortfall quantity of 1 unit. Faulty goods returned or goods rejected by customer. You would issue a credit note for the goods returned to correct your Accounts Receivable and Inventory. Product Wrongly Shipped : You wrongly invoiced and shipped Product A when the customer actually ordered Product B which may or may not be at a different price. To rectify this, you would then ship Product B together with a Credit Note for Product A and another invoice for product B. Discounts given after the invoice is issued: You sent an invoice for $1100. The customer then calls you asking for a discount and ask you to waive the $100 making the net invoice amount $1000. You agree to this in good faith. You would then issue a credit note for $100 to this customer to adjust for the discount given.

Information required on a credit note

To be valid for GST purposes, a credit note must show clearly:

an identifying number e.g. a serial number; the date of issue; your name, address and GST registration number; your customer's name and address; the reason for the credit - for example, returned goods; a description sufficient to identify the goods and services for which credit is being allowed; the quantity and amount credited for each description; the total amount credited, excluding tax; the rate and amount of tax credited; and the total amount credited, including tax.