Credit Memo Accounting Against the In Arrears Invoicing Rule
These examples illustrate the accounting for full and partial credit memos against an invoice that uses the In Arrears invoicing rule.
On 1/1/XX invoice 103 is created with these details:
-
Invoice Number = 103
-
Invoice Date = 1/1/XX
-
Invoice Amount = $100
-
Duration = 5 months
-
Invoicing Rule = In Arrears
-
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 103 over the five accounting periods:
|
Account |
Debit |
Credit |
Accounting Date |
Period Status |
|---|---|---|---|---|
|
Unbilled Receivable |
20.00 |
None |
1/1/XX |
Open |
|
Revenue |
None |
20.00 |
1/1/XX |
Open |
|
Unbilled Receivable |
20.00 |
None |
2/1/XX |
Not Open |
|
Revenue |
None |
20.00 |
2/1/XX |
Not Open |
|
Unbilled Receivable |
10.00 |
None |
3/1/XX |
Not Open |
|
Revenue |
None |
10.00 |
3/1/XX |
Not Open |
|
Unbilled Receivable |
30.00 |
None |
4/1/XX |
Not Open |
|
Revenue |
None |
30.00 |
4/1/XX |
Not Open |
|
Accounts Receivable |
100.00 |
None |
5/1/XX |
Not Open |
|
Unbilled Receivable |
20.00 |
None |
5/1/XX |
Not Open |
|
Unbilled Receivable |
None |
100.00 |
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 on 6/1/XX, with the revenue reversal rule set to Prorate.
-
Scenario 3: A partial credit memo entered against the invoice on 6/1/XX, 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 6/1/XX against invoice 103 with these details:
-
Credit memo date = 6/1/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 |
|---|---|---|---|---|
|
No Entries |
None |
None |
1/1/XX |
Closed |
|
No Entries |
None |
None |
2/1/XX |
Closed |
|
No Entries |
None |
None |
3/1/XX |
Closed |
|
Revenue (reverse Period 1 entry) |
20.00 |
None |
4/1/XX |
Open |
|
Revenue (reverse Period 2 entry) |
20.00 |
None |
4/1/XX |
Open |
|
Revenue (reverse Period 3 entry) |
10.00 |
None |
4/1/XX |
Open |
|
Revenue (reverse Period 4 entry) |
30.00 |
None |
4/1/XX |
Open |
|
Unbilled Receivable |
None |
20.00 |
4/1/XX |
Open |
|
Unbilled Receivable |
None |
20.00 |
4/1/XX |
Open |
|
Unbilled Receivable |
None |
10.00 |
4/1/XX |
Open |
|
Unbilled Receivable |
None |
30.00 |
4/1/XX |
Open |
|
Revenue (reverse Period 5 entry) |
20.00 |
None |
5/1/XX |
Open |
|
Unbilled Receivable |
None |
20.00 |
5/1/XX |
Open |
|
Unbilled Receivable (reverse original receivable) |
100.00 |
None |
6/1/XX |
Open |
|
Accounts Receivable |
None |
100.00 |
6/1/XX |
Open |
Partial Credit Memo with Revenue Reversal Rule Prorate
A partial credit memo for $65 is entered on 6/1/XX against invoice 103. The details are:
-
Revenue reversal rule = Prorate
-
Credit memo date = 6/1/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 |
|---|---|---|---|---|
|
No Entries |
None |
None |
1/1/XX |
Closed |
|
No Entries |
None |
None |
2/1/XX |
Closed |
|
No Entries |
None |
None |
3/1/XX |
Closed |
|
Revenue (65/100) * ($20) |
13.00 |
None |
4/1/XX |
Open |
|
Revenue (65/100) * ($20) |
13.00 |
None |
4/1/XX |
Open |
|
Revenue (65/100) * ($10) |
6.50 |
None |
4/1/XX |
Open |
|
Revenue (65/100) * ($30) |
19.50 |
None |
4/1/XX |
Open |
|
Unbilled Receivable |
None |
13.00 |
4/1/XX |
Open |
|
Unbilled Receivable |
None |
13.00 |
4/1/XX |
Open |
|
Unbilled Receivable |
None |
6.50 |
4/1/XX |
Open |
|
Unbilled Receivable |
None |
19.50 |
4/1/XX |
Open |
|
Revenue (65/100) * ($20) |
13.00 |
None |
5/1/XX |
Open |
|
Unbilled Receivable |
None |
13.00 |
5/1/XX |
Open |
|
Unbilled Receivable |
65.00 |
None |
6/1/XX |
Open |
|
Accounts Receivable |
None |
65.00 |
6/1/XX |
Open |
Partial Credit Memo with Revenue Reversal Rule LIFO
A partial credit memo for $65 is entered on 6/1/XX against invoice 103. The details are:
-
Revenue reversal rule = LIFO
-
Credit memo date = 6/1/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 |
|---|---|---|---|---|
|
No Entries |
None |
None |
1/1/XX |
Closed |
|
No Entries |
None |
None |
2/1/XX |
Closed |
|
No Entries |
None |
None |
3/1/XX |
Closed |
|
Revenue |
5.00 |
None |
4/1/XX |
Open |
|
Revenue |
10.00 |
None |
4/1/XX |
Open |
|
Revenue |
30.00 |
None |
4/1/XX |
Open |
|
Unbilled Receivable |
None |
5.00 |
4/1/XX |
Open |
|
Unbilled Receivable |
None |
10.00 |
4/1/XX |
Open |
|
Unbilled Receivable |
None |
30.00 |
4/1/XX |
Open |
|
Revenue |
20.00 |
None |
5/1/XX |
Open |
|
Unbilled Receivable |
None |
20.00 |
5/1/XX |
Open |
|
Unbilled Receivable |
30.00 |
None |
6/1/XX |
Open |
|
Accounts Receivable |
None |
30.00 |
6/1/XX |
Open |
Partial Credit Memo with Revenue Reversal Rule UNIT
A partial credit memo for $40 is entered on 6/1/XX for 8 units against invoice 103, 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
-
Last Period to Credit = last period of the invoice
-
Credit memo date = 6/1/XX
-
Credit memo amount = $40
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 |
This table shows the partial reverse accounting entries after the credit memo is applied:
|
Account |
Debit |
Credit |
Accounting Date |
Period Status |
|---|---|---|---|---|
|
No Entries |
None |
None |
1/1/XX |
Closed |
|
No Entries |
None |
None |
2/1/XX |
Closed |
|
No Entries |
None |
None |
3/1/XX |
Closed |
|
Revenue |
24.00 |
None |
4/1/XX |
Open |
|
Unbilled Receivable |
None |
24.00 |
4/1/XX |
Open |
|
Revenue |
16.00 |
None |
5/1/XX |
Open |
|
Unbilled Receivable |
None |
16.00 |
5/1/XX |
Open |
|
Unbilled Receivable |
40.00 |
None |
6/1/XX |
Open |
|
Accounts Receivable |
None |
40.00 |
6/1/XX |
Open |