A credited invoice is an invoice that you’ve cancelled out. Usually because it contains errors.
If you’ve made an invoice with errors, you have to credit the invoice in order to cancel it out. Then you can create a new invoice without errors.
When do I credit an invoice?
There are several reasons why you’d need to credit an invoice. The most common one is that you’ve made an error on the invoice, for example if you’ve entered the wrong price, wrong client, or the wrong products or services.
You can also do this if you’ve accidentally created a duplicate invoice.
Why do I have to make a credited invoice instead of deleting?
Everything you do in your bookkeeping should be verifiable.
You can’t delete an invoice. All invoices are assigned a unique invoice number in sequential, ascending order. There can’t be any gaps in the sequence; It should be possible for a third-party to go through your invoices, for example during an audit.
That’s why you have to credit the invoice instead of deleting it.
What happens when I credit an invoice?
When you credit an invoice, you have to create a credit note. The credit note is for the same amount as the original invoice, but it’s a negative amount. If the original invoice was for $500, then the credit note will say -$500.
If you use accounting software, the credit note is automatically created when you credit the invoice. This is how you credit an invoice when you use the free invoice software from Conta.
The due amount is also removed from your business’ income and you don’t have to pay income tax on it.
If you sent the erroneous invoice to your client, you should also send them the credit note. If the client has already paid the invoice, the customer has a credit balance, and they are due money from you.