Credit Notes - Credit Notes and Stock
If you are using a FIFO stock system and/or cost accounting (maintaining stock values in the Nominal Ledger), two complications can arise from the issuing of a Credit Note:
- some Credit Notes will involve the return of goods to stock, whereas others may not; and
- FIFO becomes impossible to calculate, as it is difficult to establish the actual cost of the goods being returned. For example, if you buy three Items costing 10.00, 11.00 and 12.00, and sell two of them, their FIFO costs will be 10.00 and 11.00 respectively. If one is returned, without intervention the system has no way of knowing whether it is the 10.00 Item or the 11.00 Item.
For these reasons, it is recommended that you follow these steps when issuing Credit Notes:
- The original Invoice should first be credited, using the process described here. When the Payment Terms field is changed to "CN", the Update Stock check box on the 'Delivery' card is switched off. This should not be switched on again as doing so will mean that the Nominal Ledger stock valuation will become inaccurate: the wrong FIFO value (that of the next stock item, 12.00 in the example above) will be used. Instead, approve the Credit Note (to update the Sales Ledger and the Debtor, VAT and Sales Accounts in the Nominal Ledger).
- Receive the Item(s) back into stock using the Goods Receipt register in the Stock module. This will correctly update stock levels and, if you have so determined in the Sub Systems setting, the Nominal Ledger stock valuation.
Because the system cannot obtain a FIFO valuation, it is recommended that you set the cost prices manually in the Goods Receipt: you may first need to find out the true value of the returned goods from flip C of the original Invoice (in the case where there is no related Sales Order) or from the original Delivery record using a report such as the Stock Out Journal or Item History.
