A customer wants money back, or we owe a supplier a credit. How do we record it right?

Four new credits at Northbrook Trading in September

Northbrook Trading sells goods to other businesses, works in US dollars and charges 7.5% sales tax on its sales. The run is on Wednesday 30 September 2026, for September. Four items come in: a pricing credit, a return of goods, a card chargeback and an unpaid invoice to write off.

One credit memo can need three different entries

A credit memo is a document that reduces what a customer owes you. A price correction, a return of goods and a goodwill credit can all use the same document. The skill uses a different entry for each one. So it asks you for the reason, and it never guesses it from the document.

Sales returns and allowances is a contra-revenue account. It has a debit balance and it reduces your gross sales¹. When goods come back and you can sell them again, a second entry puts them back into inventory at their cost¹. If the customer keeps the goods and gets a lower price, there is no inventory entry.

Crestline sent back 10 units that cost Northbrook $60 each, so 10 × 60 = $600 comes off the cost of goods sold. You say that 2 units are broken and are worth $20 each now. The skill brings 8 × 60 + 2 × 20 = $520 back into inventory. The other 600 − 520 = $80 is a write-down. If the skill brought the broken goods back at full cost, your inventory would show too much.

The tax stays on a sale that you cancelled

The skill checks every credit in the month, and the new ones too. On Wednesday 9 September, someone at Northbrook recorded credit memo CM-0412 for Acme Corp. The credit cancels all of invoice 1019: 800 + 60 tax = 860. The person put the full 860 against sales and recorded no tax line.

The skill writes a correcting draft, E4: debit Sales tax payable $60, credit Sales returns and allowances $60. It does not change or delete the original entry. Without the original invoice beside the credit, nobody sees this mistake.

The UK tax office shows the same idea for VAT. When a price falls after the sale, the supplier reduces its output tax, and a VAT-registered customer reduces the tax that it claimed². The credit note must show the number and date of the original VAT invoice. It uses the tax rate of the original sale². Northbrook is a US company, so this is only an example from another country.

Every September credit gets four checks

For each credit, the skill asks four questions. Does the original invoice exist? Are all the credits against it, this one and the earlier ones, not more than the original invoice amount? Is the period right? Is the currency the same? Then it checks the tax on the credit against the tax on the original.

The Delta problem is a posting problem, and it is not one of the four checks. A supplier gave Northbrook a $400 credit against a bill for packaging. The credit must go back to the account that holds the original cost. When a buyer returns goods, the credit also goes back to the account of the purchase³. That textbook case is about inventory. The skill uses the same idea for any cost account. Draft E3 moves the 400 from Other Income to Packaging Supplies.

A disputed chargeback does not touch your sales

Lakeside Freight paid invoice 1050 by card and then disputed the charge with its card issuer. The card processor took the $2,150 back from Northbrook and charged a $15 fee. Under US law, a cardholder can dispute a billing error in writing within 60 days of the first statement that shows it⁴. The issuer must resolve the dispute within two billing cycles, and in not more than 90 days⁴. So the dispute can still go either way.

While the dispute is open, the skill does not reverse the sale. Draft E5 records a chargeback receivable of $2,150 and a fee of $15 against the merchant clearing account: 2,150 + 15 = 2,165. If you have no connected payment processor, you supply the fee and the reference.

Brookfield Gym stopped trading and owes $1,075. Draft E7 moves the full 1,075 from accounts receivable to bad debt expense. The skill does not claim the $75 of sales tax back. Tax relief on a bad debt has its own rules in each country, so the skill flags it for you. It never claims that tax back automatically.

Seven drafts, and each one balances

CM-0418 goes against invoice 1042. The skill tracks that application and proposes no second entry for it. The credit is already in the books from the day that Northbrook issued it. A second entry would count it twice.

$2,750 of supplier credits wait on account

A credit that nobody uses stays on the customer's or the supplier's record. The skill lists these credits in both directions, from the aging detail at the end of the month. It puts the vendor credits first, largest first.

A supplier credit in your books can be money that you can use against the next bill. But some are duplicate entries, and the supplier already refunded others. So the skill asks you to check each old one against the supplier's statement before you claim it.

An overpayment, and a request that it refuses

Cedar Point Cafe paid $300 more than it owed on invoice 1047. That is an unapplied payment, and it is not a credit memo. The skill flags it and gives the refund entry as draft E6. You decide whether to refund it.

Then the owner asks: "Post these and send Crestline its refund." The skill says no, once and plainly. It cannot change data in a connected system. It gives you the drafts so that you can post them yourself in your own system.

Eight items, in one message

The skill asks these first, in one short batch. It asks only for what it cannot already see.

1. Use MosoFin for this run, or upload the data yourself?
   MosoFin is the connection to your books and the other platforms that you link. With it, the skill reads from there. Without it, you upload the files, and the checks are the same. The skill asks this only if your account has the MosoFin tools. If not, it says once that the run is manual.
2. What type is it: customer credit, customer refund, vendor credit or chargeback? For a chargeback: still disputed, accepted, or a fraud loss?
   Each type needs a different entry. The skill never chooses a default type. On the MosoFin path, the type of document in your books narrows it, and the skill asks you if that type is correct.
3. The original invoice or bill: its number, date and amount.
   With the original, the skill can check that it exists, and check its balance, period and currency. If there is no original, the skill flags it and asks for the business reason.
4. The credit amount.
   Required. The skill adds it to the earlier credits and compares the total with the original invoice amount.
5. The reason: a return, a price dispute, goodwill, damage or an error.
   Required, and never guessed. A return changes your inventory. A goodwill credit or a pricing error reduces sales. A write-off of an unpaid balance goes to bad debt.
6. The tax place, if the original carried tax.
   The tax rules of that place decide if you can get tax back on a write-off. On the MosoFin path, the skill reads the tax codes of the original and asks you if they are correct.
7. Which period's credits to review?
   The skill checks every credit in the period, and not only the new one. It names the file for the month.
8. Who approves a credit that is more than the original invoice?
   Such a credit needs a manager's approval. The skill finds these credits itself. A person must give the approval.

Then it reads the plan back and waits for your yes. The skill's own example reads like this:

"Processing credit memo CM-0418 for Northbrook Trading: a customer credit of $1,200 against invoice 1042, reason pricing error, tax under the jurisdiction you named, with the books read from your Mosofin connection. I will also check every credit in September and list unapplied credits in both directions. Shall I go ahead?"

The read-back does not say if $1,200 includes tax. This page reads it as the amount before tax, so the credit is 1,200 + 90 = 1,290.

Connect once, or upload the credit and the original

Six sheets, from the register to the coverage

For a batch, it asks whether you want the sheets as an Excel file, CreditMemos_2026-09.xlsx, before it makes one. If you say no, you get the same sheets as tables in the chat. For one credit, it gives a short summary and the entry inputs in the chat. It waits until you see and approve the results. Then it offers to save your account names and your reasons, with the entry for each reason. It also offers to save your approval limit and your write-off tax position. It never saves customer or supplier names with credit amounts, reasons or dispute details, and it never saves the open credit balance.

Seven terms, in plain English

Credit memo

A document that reduces what a customer owes you. From a supplier, accountants call it a credit note or a vendor credit.

Sales returns and allowances

A contra-revenue account: it reduces your sales and does not count as a cost¹.

On account

A credit that stays on a customer's or supplier's record and that nobody used yet.

Application

The use of a credit to pay part of an invoice. It needs no new entry in the general ledger.

Chargeback

A customer reverses a card payment through the bank that issued the card⁴.

Output tax

The tax that you charged a customer. A credit reduces it by the same rate as the original sale².

NRV

Net realisable value: what returned goods are worth now. It can be less than their cost.

Where the facts on this page come from

The sources are two sections of an accounting textbook, a UK tax office brief and a US consumer guide. We found each one on 28 October 2026 in search results. We did not open the pages, so follow each link for today's wording. What the skill does comes from the skill's own files.

1. OpenStax: Principles of Accounting, Volume 1, 6.4 Analyze and Record Transactions for the Sale of Merchandise Using the Perpetual Inventory SystemSales returns and allowances is a contra-revenue account with a debit balance that reduces gross sales. With a perpetual inventory, a second entry puts goods that come back into inventory and reduces cost of goods sold. An allowance has no inventory entry.
2. HMRC: Revenue and Customs Brief 6 (2019): changes in accounting for VAT after prices are alteredWhen a price falls after the sale, the supplier reduces its output tax and a VAT-registered customer reduces its input tax. The credit note shows the number and date of the original VAT invoice and uses the rate of the original supply. This is a UK rule.
3. OpenStax: Principles of Accounting, Volume 1, 6.3 Analyze and Record Transactions for Merchandise Purchases Using the Perpetual Inventory SystemA buyer that returns goods credits Merchandise Inventory, the account where it recorded the purchase. Before payment it debits Accounts Payable, and after payment it debits Cash.
4. Federal Trade Commission: Using Credit Cards and Disputing ChargesUnder the Fair Credit Billing Act, a cardholder can dispute billing errors in writing within 60 days of the first statement that shows the error. The issuer must resolve the dispute within two billing cycles, and in not more than 90 days. This is a US consumer rule.

No outside authority backs the list of credit types, the four checks, the six sheets, the vendor-first order or the 7.5% rate. They are the skill's own rules and examples. We made up Northbrook Trading and every figure in the example for this page. Northbrook is a US company, and US states set sales tax, so this page cites no US tax rule. The UK source shows the same tax idea in another country.