Step 1: Turn on or turn off Automatically apply credits
If you haven't already, you can tell QuickBooks to automatically apply adjustment notes to customers balances or open invoices. To turn on the adjustment note auto-apply feature:
- Go to Settings and select Account and settings.
- Select the Advanced tab.
- Select Edit ✎ in the Automation section.
- Turn on Automatically apply credits if you want to automatically apply credits to customer balances or open invoices. Turn it off if you want to decide which open invoices you want to apply adjustment notes to.
- Select Save, then Done.
What happens if the automatically apply credits setting is on
Turn on auto-apply credits if you want to automatically apply adjustment notes to the oldest open invoices for the same customer. Here’s what'll happen if it’s on:
- If you have older open invoices, QuickBooks applies the adjustment note to the oldest open invoice. If none, QuickBooks applies the adjustment note to the next invoice.
- If the credit matches the amount on the invoice, the adjustment note and invoice will show as Closed. If the credit is less than the amount of the invoice, the adjustment note will show as Closed, and the invoice will show as Partial.
- If the credit is more than the amount of the oldest open invoice, QuickBooks applies the remainder to the next oldest open invoice. If there’s no more open invoices, the status of the adjustment note will show as Unapplied.
- If you create adjustment note and your customer owes nothing, they’ll have a negative balance.
What happens if the automatically apply credits setting is off
Turn off auto-apply credits if you create a lot of invoices and adjustment notes for customers. Also, if you need to apply specific adjustment notes to specific invoices. Here’s what'll happen if it’s off:
- When you enter a credit, QuickBooks won’t apply it to any open invoices.
- When you receive a customer payment using Receive payment, it has a Credits section (if the customer has credits). You can then choose when to apply credits and to which invoices.
- If you don’t link any credits, the Customer Balance Detail report shows that both the invoice and the adjustment note have open balances. They also show as Open on the Customer and Sales transaction pages.
Step 2: Create an adjustment note
- Select + New.
- Select Adjustment note.
- In the Customer dropdown, select the customer's name.
- Enter the adjustment note details, such as the date and the amount. Tip: You can create a custom credit service item so you can quickly add it to adjustment notes as a single line item.
- When you're done, select Save and close.
Step 3: Apply the adjustment note to an invoice
If you turned on the adjustment note auto-apply feature, QuickBooks handles this for you. Your work is done and QuickBooks applied the credit for you.
If you turned off the feature, here's how to manually apply an adjustment note to an invoice:
- Select + New.
- Select Receive payment.
- From the Customer dropdown, select the customer.
- From the Outstanding Transactions section, select the open invoice you want to apply the adjustment note to.
- From the Credits section, select the adjustment notes you want to apply.
- For the open invoice in the Payment column, enter how much of the credit you want to apply.
- Leave the Payment method, Reference no, Deposit to, and Amount received fields blank.
- Fill out the rest of the form, including the Payment date.
- Make sure the total is correct after applying the adjustment note.
- When you're done, select Save and close.