Credit Notes

A credit note reduces what someone owes you, or what you owe someone, without deleting the original document. Evolution supports credit notes on both sides of the ledger: customer (AR) credit notes reduce a customer’s balance, and supplier (AP) credit notes reduce what you owe a supplier. Both work the same way — you raise the credit, commit it to post the accounting, then apply it against the open invoices or bills it relates to.

Credit notes are shown with a “CN” prefix throughout the system so they are easy to tell apart from invoices and bills.

When to use a credit note

Use a credit note whenever a balance needs to come down for a reason other than a payment — for example:

Returned or faulty goods.
A price adjustment or goodwill discount after an invoice has been sent.
A supplier crediting you for an over-charge or short delivery.
Correcting an invoice or bill that was raised for too much, without deleting it.

info A credit note posts the exact accounting reverse of the invoice or bill it mirrors — the revenue/expense, the tax (GST) and the control account all move back the other way when you commit it.

Raising a credit note

There are two ways to start a credit note, depending on where you begin.

content_copy From an existing invoice or bill

Open the invoice (AR) or bill (AP) you want to credit and click Create Credit. Evolution opens a new credit note pre-filled from the source document — its lines, customer/supplier, project and tax are carried over, and the credit is automatically linked back to the invoice or bill it came from. Trim or adjust the lines so the credit covers only what you are actually crediting (a full or partial amount).

note_add Standalone

From the Credit Note Register, start a new credit and choose whether it is a customer (AR) or supplier (AP) credit. Pick the customer or supplier, then enter free-form lines just as you would on an invoice or bill. Use this when the credit doesn’t relate to one specific document.

The credit note header captures:

Field	What it’s for
Customer / Supplier Required	Who the credit is for. Pre-filled when the credit was created from an invoice or bill.
Project	Optional project the credit relates to. Search for it by number, name or customer, as on other screens; Go to project beside the label opens it. Carried over from the source document, and shown on the project’s costing so credited amounts reduce the invoiced/cost figures. On a customer credit, picking a project that belongs to another customer shows an amber Another customer’s project flag. It is a reminder, not a block. Once returned goods have been added, the project is fixed. Remove those lines to change it. A credit made from an invoice that covers several projects keeps each line’s own project; the header project is only the default for new lines.
Reference / Customer Ref	Your reference and (optionally) the customer’s or supplier’s reference.
Reason	Why the credit is being raised (e.g. returned goods, price adjustment). Recommended for a clear audit trail.
Date	The credit note date. Defaults to today.
Credit Type	Required. Records why the credit is raised and controls whether stock moves when the credit is committed: Goods Returned (customer credit) — returns the credited stock items into inventory, mirroring the way the invoice removed them. Lines added from returned goods are the exception. Return Goods already put that stock back, so committing doesn’t add it a second time. Supplier Return (supplier credit) — moves the credited stock items out of inventory back to the supplier. Pricing Adjustment, Service Adjustment, Damaged Goods Returned and Rebate / Goodwill — value only; inventory is not touched. (Damaged returns are credited but not put back into sellable stock.) Because the type drives the stock movement, a genuine goods return can no longer be missed — choosing the right type is enough.

A committed credit note: status, customer, project and source invoice in the band at the top, with Un-Commit and Xero beside them; totals and remaining credit in the tiles; Lines, Allocations and History tabs below.

The totals sit in the tiles at the top. On a committed credit, Remaining shows how much is left to apply; click it to open the Allocations tab. While the credit is a draft, Save, Commit and Delete stay in the bar at the bottom of the screen. Commit stays greyed out until there’s a customer or supplier, a credit type and at least one line; hover over it to see what’s missing.

Crediting returned goods

When a customer sends goods back, record them with Return Goods on the project’s Inventory tab. That puts the stock back on the shelf, but it doesn’t credit the customer. Raise a customer credit note for the returned goods:

Start the credit from the project: in Return Goods, under Previous returns, click Create credit note. It opens a new customer credit with the project and customer filled in. You can also start a customer credit note any other way and pick the project.
Below the lines, Returned goods not yet credited lists every return on the project that isn’t on a credit note yet, with what was returned, what’s already credited, and a To credit quantity set to what’s left.
Tick the rows to credit (or tick the header box for all of them), adjust To credit if needed, and click Add selected to credit note.

Each added line is marked Return. Its price, tax code and account come from the invoice line the goods were sold on; if there is no invoice line, from the item’s defaults. If no credit type has been chosen yet, it is set to Goods Returned. A row flagged Returned > invoiced means more came back than was invoiced; it can still be credited, so check the quantity first. Evolution won’t credit more than is left to credit, even with two credit notes open at once: anything over is trimmed when you add it, and a message says so.

A new customer credit started from Return Goods: the project is filled in, and the returned goods not yet credited are listed under the lines, ready to tick and add.

Committing a credit note

Like invoices and bills, a credit note starts as a Draft that you can edit freely. When it is correct, commit it to finalise it and post the accounting.

Draft

Entered but not yet posted. Fully editable. It has no effect on balances yet and cannot be applied to anything.

Committed

Finalised and posted to the general ledger (the reverse of an invoice/bill). It is now available to apply against open documents.

Deleted

Removed and no longer affecting AR or AP.

What committing posts. For a customer (AR) credit, Evolution debits revenue and the collected GST and credits the Accounts Receivable control account — the exact reverse of committing the invoice. For a supplier (AP) credit, it credits the expense/purchase account and the GST paid and debits the Accounts Payable control account — the reverse of committing the bill. When the Credit Type is Goods Returned the credited stock items move back into inventory at the same time; when it is Supplier Return they move out of inventory back to the supplier. Lines added from returned goods are skipped, because Return Goods already restocked them.

info Committing (and un-committing) posts to the general ledger, so it needs Admin access on the relevant module — Accounts Receivable for customer credits, Accounts Payable for supplier credits — plus General Ledger access. See Setting Permissions and the Permissions required summary below.

Applying (allocating) a credit

Committing a credit note creates available credit. To reduce an actual invoice or bill, you apply (allocate) the credit against it. Open the committed credit note and use the Apply / Allocate panel:

The panel lists the customer’s open invoices (AR) or the supplier’s open bills (AP).
Enter the amount of the credit to apply against each document.
Save. The target invoice/bill balance drops by the amount applied, and the credit’s remaining balance drops by the same amount.

You can spread one credit across several documents, and apply it a bit at a time.

Applying credit from the invoice or bill

You don’t have to start from the credit note. When you open an invoice or bill for a customer or supplier who has available credit, Evolution alerts you right on the document so the credit isn’t forgotten:

A banner appears below the header: “$X credit available for this account.”
Click Apply Credit to open a panel listing every open credit note for that account. Enter how much of each to apply — it defaults to the most that can be applied — then save. The document’s open balance and each credit’s remaining balance update straight away.

warning Because a credit can only be applied to a committed invoice or bill, the banner shows on a draft but the Apply Credit button stays disabled until you commit the document. On a brand-new document it appears once the document has been saved with the account selected.

This is the same allocation as the credit note’s own Apply / Allocate panel — just started from the other end — and it obeys exactly the same rules below.

The available-credit banner and Apply Credit panel shown on an invoice for a customer who has open credit.

The rules Evolution enforces:

Only a committed credit can be applied, and only to a committed invoice or bill.
A customer (AR) credit can only be applied to invoices; a supplier (AP) credit only to bills — the two never cross.
You cannot apply more than the credit’s remaining amount, and you cannot apply more than the target document’s open balance.

Applying a credit does not post another journal — the accounting was already posted when both the credit note and the invoice/bill were committed. Applying simply records which credit offsets which document and updates the open balances.

The apply/allocate panel listing the open invoices a committed customer credit can be applied against.

Viewing remaining / available credit

A committed credit note shows its remaining balance — the amount not yet applied to any invoice or bill. Until it is fully applied, that amount sits as available credit on the customer’s or supplier’s account and correctly reduces their overall AR/AP balance.

payments No cash refunds in this version. Unused credit stays on the account as available credit to apply against future invoices or bills. Paying unused credit back out as cash is planned for a later release.

Reversing (un-committing) a credit note

If a credit note was committed in error, you can un-commit it. Evolution reverses the general-ledger postings exactly (so the ledger nets back to where it was) and returns the credit note to Draft so it can be edited or deleted. Any stock movement made on commit (from a Goods Returned or Supplier Return type) is reversed at the same time.

warning A credit note cannot be un-committed while it is still applied to an invoice or bill. Remove its allocations first (de-allocate), then un-commit. A Xero only allocation can only be removed in Xero.

Xero

If your business is connected to Xero, credit notes sync automatically. Committing a customer credit creates an Accounts Receivable credit note in Xero; a supplier credit creates an Accounts Payable credit note. When you apply a credit against an invoice or bill, that allocation is reflected against the same document in Xero, so both systems stay in step.

It works the other way too. A credit note raised, applied or voided in Xero is brought across to Evolution by the regular Xero sync and applied to the same invoice or bill. Where it does not fit the balances in Evolution, for example because the invoice has already been credited here, nothing is changed and the document is flagged for review instead. See Credit Notes from Xero.

The regular sync only brings across credit notes from the current financial year. For an older one, open the invoice or bill it was applied to and press Sync from Xero in the Payments heading. See Bringing In an Older Credit Note.

If part of a credit note was used in Xero on an invoice or bill Evolution does not have, or refunded in Xero, the Allocations tab shows it as a Xero only line saying where it went. It keeps the remaining credit the same as Xero and changes no Evolution document. Remove it in Xero; the next sync removes it here.

Permissions required

Credit notes are controlled by the same module permissions as invoices and bills. Customer (AR) credit notes use Accounts Receivable; supplier (AP) credit notes use Accounts Payable. Committing or un-committing a credit note additionally requires General Ledger access, because it posts to the ledger.

To do this…	…you need
View the credit note register and open existing credit notes	Allowed on Accounts Receivable (customer) or Accounts Payable (supplier)
Create, edit, apply (allocate) and delete credit notes	Admin on Accounts Receivable or Accounts Payable
Commit or un-commit a credit note	Admin on the relevant AR/AP module and at least Allowed on General Ledger

info If you are missing one of these, the credit note screen tells you exactly which access is required. For how to set access levels, see Setting Permissions.

Support

For help with credit note setup, posting accounts or Xero sync, please contact Evolution ERP Support.