All 24 Invoice Processing questions
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Accounts Payable & Receivable › Invoice Processing

What is a credit note (credit memo) and how is it processed in AP?

Intermediate

Answer

A credit note is a supplier document reducing what you owe—issued for returns, overcharges, or agreed discounts. In AP it is recorded as a debit to accounts payable (reducing the liability) and a credit to expense/inventory, and it is applied against the related invoice or future invoices during the payment run.
Supplier credit note for returned goods $300:
  Dr Accounts Payable   300
      Cr Inventory/Expense     300
Applied against the next open invoice from that supplier.
Real-world example A returned faulty part generates a supplier credit note that offsets the next invoice so only the net is paid.

Common follow-ups: How is a credit note applied in a payment run? | What if the supplier issues no credit note?

Payment Runs Reconciliations Vendor Management
All 24 Invoice Processing questions