Credit Memo Accounting Against the In Advance Invoicing Rule
These examples illustrate the accounting for full and partial credit memos against an invoice that uses the In Advance invoicing rule.
On 1/1/XX invoice 102 is created with these details:
-
Invoice Number = 102
-
Invoice Date = 1/1/XX
-
Invoice Amount = $100
-
Duration = 5 months
-
Invoicing Rule = In Advance
-
Revenue Scheduling Rule = Fixed Amount, with these details:
-
Period 1 = $20
-
Period 2 = $20
-
Period 3 = $10
-
Period 4 = $30
-
Period 5 = $20
-
This table shows the accounting entries for invoice 102 over the five accounting periods:
|
Account |
Debit |
Credit |
Accounting Date |
Period Status |
|---|---|---|---|---|
|
Accounts Receivable |
100.00 |
None |
1/1/XX |
Open |
|
Unearned Revenue |
20.00 |
None |
1/1/XX |
Open |
|
Unearned Revenue |
None |
100.00 |
1/1/XX |
Open |
|
Revenue |
None |
20.00 |
1/1/XX |
Open |
|
Unearned Revenue |
20.00 |
None |
2/1/XX |
Not Open |
|
Revenue |
None |
20.00 |
2/1/XX |
Not Open |
|
Unearned Revenue |
10.00 |
None |
3/1/XX |
Not Open |
|
Revenue |
None |
10.00 |
3/1/XX |
Not Open |
|
Unearned Revenue |
30.00 |
None |
4/1/XX |
Not Open |
|
Revenue |
None |
30.00 |
4/1/XX |
Not Open |
|
Unearned Revenue |
20.00 |
None |
5/1/XX |
Not Open |
|
Revenue |
None |
20.00 |
5/1/XX |
Not Open |
The examples describe four separate scenarios:
-
Scenario 1: A full credit memo entered against the invoice.
-
Scenario 2: A partial credit memo entered against the invoice, with the revenue reversal rule set to Prorate.
-
Scenario 3: A partial credit memo entered against the invoice, with the revenue reversal rule set to LIFO.
-
Scenario 4: A partial credit memo entered against the invoice on 6/1/XX, with the revenue reversal rule set to UNIT.
Full Credit Memo
A full credit memo is entered on 2/15/XX against invoice 102 with these details:
-
Credit memo date = 2/15/XX
-
Credit memo amount = $100
This table shows the reverse accounting entries after the credit memo is applied:
|
Account |
Debit |
Credit |
Accounting Date |
Period Status |
|---|---|---|---|---|
|
Unearned Revenue |
100.00 |
None |
2/15/XX |
Open |
|
Revenue |
20.00 |
None |
2/15/XX |
Open |
|
Revenue |
20.00 |
None |
2/15/XX |
Open |
|
Accounts Receivable |
None |
100.00 |
2/15/XX |
Open |
|
Unearned Revenue |
None |
20.00 |
2/15/XX |
Open |
|
Unearned Revenue |
None |
20.00 |
2/15/XX |
Open |
|
Revenue |
10.00 |
None |
3/1/XX |
Not Open |
|
Unearned Revenue |
None |
10.00 |
3/1/XX |
Not Open |
|
Revenue |
30.00 |
None |
4/1/XX |
Not Open |
|
Unearned Revenue |
None |
30.00 |
4/1/XX |
Not Open |
|
Revenue |
20.00 |
None |
5/1/XX |
Not Open |
|
Unearned Revenue |
None |
20.00 |
5/1/XX |
Not Open |
Partial Credit Memo with Revenue Reversal Rule Prorate
A partial credit memo for $65 is entered on 2/15/XX against invoice 102. The details are:
-
Revenue reversal rule = Prorate
-
Credit memo date = 2/15/XX
-
Credit memo amount = $65
This table shows the partial reverse accounting entries after the credit memo is applied, with the computations used to derive the partial amounts:
|
Account |
Debit |
Credit |
Accounting Date |
Period Status |
|---|---|---|---|---|
|
Unearned Revenue (65/100) * ($100) |
65.00 |
None |
2/15/XX |
Open |
|
Revenue (65/100) * ($20) |
13.00 |
None |
2/15/XX |
Open |
|
Revenue (65/100) * ($20) |
13.00 |
None |
2/15/XX |
Open |
|
Accounts Receivable |
None |
65.00 |
2/15/XX |
Open |
|
Unearned Revenue |
None |
13.00 |
2/15/XX |
Open |
|
Unearned Revenue |
None |
13.00 |
2/15/XX |
Open |
|
Revenue (65/100) * ($10) |
6.50 |
None |
3/1/XX |
Open |
|
Unearned Revenue |
None |
6.50 |
3/1/XX |
Open |
|
Revenue (65/100) * ($30) |
19.50 |
None |
4/1/XX |
Not Open |
|
Unearned Revenue |
None |
19.40 |
4/1/XX |
Not Open |
|
Revenue (65/100) * ($20) |
13.00 |
None |
5/1/XX |
Not Open |
|
Unearned Revenue |
None |
13.00 |
5/1/XX |
Not Open |
Partial Credit Memo with Revenue Reversal Rule LIFO
A partial credit memo for $65 is entered on 2/15/XX against invoice 102. The details are:
-
Revenue reversal rule = LIFO
-
Credit memo amount is fully applied by Period 2
-
Credit memo date = 2/15/XX
-
Credit memo amount = $65
This table shows the partial and full reverse accounting entries after the credit memo is applied:
|
Account |
Debit |
Credit |
Accounting Date |
Period Status |
|---|---|---|---|---|
|
Revenue |
5.00 |
None |
2/15/XX |
Open |
|
Unearned Revenue |
65.00 |
None |
2/15/XX |
Open |
|
Unearned Revenue |
None |
5.00 |
2/15/XX |
Open |
|
Accounts Receivable |
None |
65.00 |
2/15/XX |
Open |
|
Revenue |
10.00 |
None |
2/15/XX |
Open |
|
Unearned Revenue |
None |
10.00 |
2/15/XX |
Open |
|
Revenue |
30.00 |
None |
3/1/XX |
Not Open |
|
Unearned Revenue |
None |
30.00 |
3/1/XX |
Not Open |
|
Revenue |
20.00 |
None |
4/1/XX |
Not Open |
|
Unearned Revenue |
None |
20.00 |
4/1/XX |
Not Open |
Partial Credit Memo with Revenue Reversal Rule UNIT
A partial credit memo for $65 is entered on 6/1/XX for 8 units against invoice 102, assuming that this invoice consists of 10 units with a value of $10 each for a total of $100. The details are:
-
Revenue reversal rule = UNIT
-
Credit memo date = 6/1/XX
-
Credit memo amount = $65
Receivables derives the Amount to Credit in each period by multiplying the Net Unit Price for each period by the number of units to credit (8 in this example). Receivables derives the Net Unit Price by the following formula:
Net Unit Price = (Invoice Amount in this period - any previous credit memos in
this period) / Original invoice quantity
This table shows the Net Unit Price for each period:
|
Period |
Calculation |
Net Unit Price |
|---|---|---|
|
Period 5 |
($20-$0)/10 units |
$2 |
|
Period 4 |
($30-$0)/10 units |
$3 |
|
Period 3 |
($10-$0)/10 units |
$1 |
|
Period 2 |
($20-$0)/10 units |
$2 |
|
Period 1 |
($20-$0)/10 units |
$2 |
This table shows the Amount to Credit (Net Unit Price * Units to Credit) in each period as a result of the calculations of the net unit price in the previous table:
|
Period |
Amount to Credit |
Amount Credited (actual) |
|---|---|---|
|
Period 5 |
$2 * 8 units |
$16 |
|
Period 4 |
$3 * 8 units |
$24 |
|
Period 3 |
$1 * 8 units |
$8 |
|
Period 2 |
$2 * 8 units |
$16 |
|
Period 1 |
$2 * 8 units |
$1 (balance of credit memo) |
This table shows the partial reverse accounting entries after the credit memo is applied:
|
Account |
Debit |
Credit |
Accounting Date |
Period Status |
|---|---|---|---|---|
|
Unearned Revenue |
65.00 |
None |
1/1/XX |
Open |
|
Revenue |
1.00 |
None |
1/1/XX |
Open |
|
Accounts Receivable |
None |
65.00 |
1/1/XX |
Open |
|
Unearned Revenue |
None |
1.00 |
1/1/XX |
Open |
|
Revenue |
16.00 |
None |
2/1/XX |
Open |
|
Unearned Revenue |
None |
16.00 |
2/1/XX |
Open |
|
Revenue |
8.00 |
None |
3/1/XX |
Open |
|
Unearned Revenue |
None |
8.00 |
3/1/XX |
Open |
|
Revenue |
24.00 |
None |
4/1/XX |
Open |
|
Unearned Revenue |
None |
24.00 |
4/1/XX |
Open |
|
Revenue |
16.00 |
None |
5/1/XX |
Open |
|
Unearned Revenue |
None |
16.00 |
5/1/XX |
Open |