credit note help needed

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:24AM in AAT student discussion
I'm a little confused about this : When writing a credit note for a return of an item it's pretty straight forward - on the credit note you fill in the net amount and the VAT amount and the Total amount and the discount etc.

I'm confused though when it comes to how to credit a customer who has overpaid on an invoice when it comes to discounts and VAT.
I'll make up an example to illustrate.

A customer gets a quote from a company for £900 minus 20% trade discount, plus VAT but gets invoiced for £950 minus 20% trade discount, Plus VAT - the £950 is paid by cheque but then the accounts guy realises they have overpaid. They ask the company for a credit note for the difference. ...How do write the credit note in terms of net amount, discount and VAT ? Or do I just leave the vat and discount columns blank and just fill in the total.

Thanks for any help

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:credit note help needed


    If I receive a an overpayment, it would remain on the customer's account until they bought more goods. The error would be corrected by them when they made their next payment.

    Hopefully, they would realise their error when our statement was received.

    Helen
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:credit note help needed

    Yep that makes sense too. But just for the sake of working it out, how would I work out the difference.

    The price they should have paid was £846 however they paid £893 (taking into account 20% trade discount and VAT on both figures) ...so to credit them the difference would I just do the sum 893-846 = £47 difference,or would I work out the difference another way?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:credit note help needed


    If the error has been made by the company raising the original document rather than the company paying:

    It would probably be easier to start again. Raise the correct invoice and then a separate credit for incorrect document.

    The overpayment would still remain - unless you decided to write a cheque for a refund, but I would be more inclined to hold on to the money to off-set future transactions. But obviously it depends on if the company intends buying from you again!

    Helen
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:credit note help needed

    Depends on your system;

    You could just issue a straight uncomplicated credit for the £47.00 difference comprising the £40.00 plus £7.00 VAT.

    Or,

    Credit them the £50.00 original invoice error amount less the 20% discount which would still give you £40.00 plus £7.00 VAT = £47.00

    As you can see, both give the same credit amount, however the second is slightly more complicated than the first. I myself would probably go for the first option however the other company might like the second as it shows the trade discount being taken into consideration.

    And as Helen said, I don't issue credit notes willy nilly, would wait for them to spot it first (you never know, they might not!) and then take it off their next payment.

    Regards,

    Robert

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:credit note help needed

    Thank you guys. Robert, your second option was just the thing I was looking for.
    Thanks a lot. :D
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:credit note help needed


    I always suggest starting again so that you have a correct document on file that shows how much should have been charged to the customer.

    That way, in the future, you would be able to see at a glance what a customer paid for specific items.

    Otherwise you tend to have to trace the transactions through your system.

    Obviously it depends on the business - but with me, I tend to need to refer back over 2 or 3 years, so like to keep transactions nice and clear.

    Helen

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