To create a credit memo in QuickBooks, go to the + New button, select Credit memo under Customers, choose the customer, fill in the items, and save. This applies to QuickBooks Online; QuickBooks Desktop uses a slightly different path (Customers > Create Credit Memos/Refunds).
What Is a Credit Memo in QuickBooks?
A credit memo is a document that reduces the amount a customer owes you. You issue one when a customer returns goods, receives a price adjustment, or you want to apply a credit to a future invoice. In QuickBooks, a credit memo is not a refund—it’s a credit that can be applied to an open invoice or kept on the customer’s account. If you actually send money back, you’ll create a refund from the credit memo.
QuickBooks treats credit memos as negative invoices. They appear on the customer’s statement and reduce their accounts receivable balance. You can apply a credit memo to a single invoice, multiple invoices, or leave it unapplied for later use.
How to Create a Credit Memo in QuickBooks Online
Follow these steps in QuickBooks Online (the current version):
- Click + New (top right).
- Under Customers, choose Credit memo.
- Select the Customer from the dropdown. Their billing address and terms auto-fill.
- In the Products/Services column, select the item being credited. Enter the quantity and rate. QuickBooks calculates the amount.
- Add a memo if needed (e.g., “Return of damaged item”).
- Click Save and close or Save and new.
After saving, QuickBooks asks if you want to apply the credit to an invoice. Choose Apply to select an open invoice, or Keep it to leave it unapplied. You can also apply it later from the customer’s transaction list.
Creating a Credit Memo in QuickBooks Desktop
QuickBooks Desktop (Pro, Premier, Enterprise) uses a similar but distinct process:
- Go to Customers menu and select Create Credit Memos/Refunds.
- Choose the customer from the dropdown.
- Enter the item, quantity, and rate. The credit amount appears.
- Click Save & Close.
- QuickBooks prompts you to apply the credit to an invoice or issue a refund. Select Apply to use it against an open invoice, or Leave as available credit.
Desktop also allows you to create a credit memo from an existing invoice by clicking Create credit memo in the invoice window.
Applying a Credit Memo to an Invoice
If you didn’t apply the credit memo immediately, you can do it later:
- Go to Sales > All Sales (Online) or Customers > Receive Payments (Desktop).
- Find the invoice and open it.
- Click Apply credits (Online) or select the credit memo in the Credits field (Desktop).
- Choose the credit memo you want to apply. The invoice balance reduces.
You can also apply a credit memo to multiple invoices at once. In QuickBooks Online, go to the customer’s transaction history, click the credit memo, then select Apply and check multiple invoices.
Refunding a Customer from a Credit Memo
If the customer wants their money back instead of a credit, you can issue a refund:
- Open the credit memo.
- Click Refund (Online) or Use credit to give refund (Desktop).
- Choose the refund method: cash, check, or credit card.
- Enter the amount and date.
- Save. QuickBooks records the refund as a negative payment, reducing the credit balance.
Be aware that refunding a credit memo does not delete it; it creates a linked refund transaction. This keeps your audit trail clean.
Common Problems and How to Avoid Them
- Wrong customer selected—double-check the customer name before saving. A credit memo to the wrong customer can cause confusion.
- Applying to the wrong invoice—when applying, verify the invoice number and amount.
- Duplicate credit memos—always check the customer’s transaction list before creating a new one.
- Credit memo not showing on reports—run the Customer Balance Detail report to see all credits. If missing, check the date range.
- Inventory issues—if you credit a product that was sold, QuickBooks increases your inventory quantity back. Make sure the item is set up correctly.
If you accidentally create a wrong credit memo, you can void it (not delete) to maintain a proper audit trail. In QuickBooks Online, go to the transaction and select More > Void.
Credit Memo vs. Refund vs. Adjustment
Many users confuse these terms. A credit memo reduces the customer’s balance but doesn’t send money. A refund is an actual payment back to the customer. A credit adjustment (often called a “write-off” or “discount”) is a manual change to the balance without a full credit memo. QuickBooks has a separate Credit adjustment option under Customers in Desktop, but in Online you’d typically use a credit memo or a discount on an invoice. Use a credit memo for returns or price corrections; use a discount if you’re giving a partial reduction.
Credit Memo Template
You can create a reusable template for credit memos in QuickBooks Desktop (Online uses a fixed format). Here’s a blank template you can copy into a document:
| Field | Value |
|---|---|
| Credit Memo # | ______ |
| Date | ______ |
| Customer | ______ |
| Item | ______ |
| Quantity | ______ |
| Rate | ______ |
| Amount | ______ |
| Reason | ______ |
Sample (fictional):
Credit Memo #CM-101 | Date: 2024-03-15 | Customer: Acme Corp | Item: Widget A | Qty: 2 | Rate: $25.00 | Amount: $50.00 | Reason: Defective goods returned.
In QuickBooks, you can customize the credit memo template in Desktop by going to Lists > Templates and editing the credit memo layout. Online doesn’t allow full customization of credit memo forms, but you can add custom fields.
Frequently Asked Questions
Can I create a credit memo without a customer?
No. QuickBooks requires a customer on every credit memo because it affects accounts receivable. If you need to credit a vendor, use a vendor credit instead.
How do I delete a credit memo in QuickBooks?
You cannot permanently delete a credit memo in QuickBooks Online—you can only void it. In Desktop, you can delete it if it hasn’t been applied to a payment or invoice. To void, open the credit memo, click More > Void. This keeps the transaction number but removes its effect.
Does a credit memo affect inventory?
Yes, if the item is an inventory product, QuickBooks will increase your inventory quantity by the returned amount. For non-inventory items, no inventory effect occurs.
Can I apply a credit memo to a bill?
No. Credit memos are for customers (sales). For vendor bills, you use vendor credits. Applying a customer credit to a bill would mix different account types.
What if the credit memo is larger than the invoice?
If you apply a credit memo that exceeds the invoice balance, the excess remains as an available credit on the customer’s account. You can apply it to future invoices or issue a refund for the difference.
Final Thoughts
Creating a credit memo in QuickBooks is straightforward once you know where to click. The key is to always select the correct customer, apply the credit to the right invoice, and decide whether to keep it as a credit or issue a refund. If you’re dealing with complex returns or tax implications, consider consulting a bookkeeper or accountant. They can help you set up items correctly and ensure your books stay accurate.