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How to Adjust Customer Account Balances Using Credit Memos



Sometimes it is necessary to provide credit to customers as a gesture of accommodation, for instance:

There are many unexpected situations in which sellers may adjust accounts of their customers, giving credit against the balance due.
Trade with customers isn’t a mechanical exercise, it is a relationship in which many unexpected things happen, for instance:

The issuing of a Credit Memo will allow the company to reduce the customer’s outstanding obligation to it by crediting accounts receivable as shown below:

Non-conforming Product Expense $X.XXX,XX
Trade Receivables $X.XXX,XX
- to record price accommodation for noted defects in product shipped.

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Crediting accounts receivable by using a credit memo requires a clear understanding on how to create a GL item as well as the way they are used in Sales Financial Invoices.

It is highly recommended to understand how Sales Document types are configured in Openbravo and how Credit Sales Invoices can be created as well.

Execution Steps

In Openbravo, the company in this example will have to issue a credit memo by using a specific accounting item or GL Item.

Creation of a G/L Item

The company in this example will issue a Credit Memo that does not involve the return of goods.
Credit memo is considered a financial invoice in Openbravo terminology, which distinguishes it from invoices that relate to products and services.

To process a financial invoice for the credit memo, a G/L_Item must be created first, a G/L Item called Product Defects by example, mapping the G/L Item to an expense account of the same name. In practice you may use any G/L item related to any expense account to record the debit transaction that will be posted.

HowToAdjustCustomerBalance GLitemCreation.png

The above window shows the G/L item created to process the credit memo. Note that when you create a G/L item for the credit memo, you need to select the Enable in Financial Invoices checkbox and the G/L item needs to be assigned to an expense account named in both GL Item Debit Acct and GL Item Credit Acct fields, both fields can be found in the Accounting tab of the G/L Item window.

Creation of an A/R Credit Memo

In order to credit the customer account, an A/R Credit Memo is raised:

HowtoadjusttcustomercreditbalanceusingCreditmemoexample CM headerandline.jpg

Below shows the posting created for the Credit Memo:

HowToAdjustCustomerBalanceUsingCreditMemo Financial invoice cm journal entry.jpg


This completes the creation and processing of the credit memo. As a result:

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