I have a retail shop that accepts inventory for store credit. How do I account for this? Known: Inc/Dec Inventory Asset & Inc/Dec Trade In Credit (Other CL)

@casualheroescard 

A credit memo is the obvious choice IMO.  When you create a credit memo, QB will record a credit that you can see on the customer's account and that can be applied to future invoices.  However, you cannot automatically apply credits to sales receipts (not sure why QBO can't do that).   Are you creating inventory items (Products) for each trade?  If so, set up the item first, then use that on the credit memo.  That will add the item to inventory and record the customer credit.   

Thank you so much for your response.

Pretty much all the time we set up store credit for inventory. There are a few instances where we just give a person store credit, like if they won an event or something and they want store credit instead of a prize.

When I set up the item, it gives me a choice to either do non-inventory or services. Which one would I do?

@casualheroescard 

"When I set up the item, it gives me a choice to either do non-inventory or services. Which one would I do?"

If you're tracking your inventory, you want to create an inventory product, not a non-inventory product.  The difference is significant.  When you set up an inventory item, the item goes into inventory (asset) and is only expensed when you sell it.  If you use a non-inventory item, you expense it at the time you take it in on trade.  It sounds like creating a non-inventory product is the way to go, right?  Well, the IRS has rules about that, and if inventory is a significant income-producing factor, then you should be using accrual accounting and capitalize (record as an asset) the cost of inventory when you bring it in on trade.  Hence why you should use inventory products.  The inventory vs. non-inventory issue can get cloudy based on some new tax rules that went into effect in 2018 but, IMO, you should use inventory items.  Contact your own CPA if you need further guidance.          

"There are a few instances where we just give a person store credit, like if they won an event or something and they want store credit instead of a prize."

It's important to understand that QB is an accounting system, not a point-of-sale system.  Therefore, it doesn't work well when issuing store credit when a customer wins a prize.  The reason is that QB is a double-entry accounting system that affects two accounts with every entry.  In the case of store credit when someone wins a prize, there is no offsetting entry for the store credit because you have not received cash/inventory and you have not incurred any expense.  Ideally, you would issue your customer a physical card for the store credit so you can wait to record that until they redeem their prize, if they ever do.  You can create a service product called "Prize Discount" (or something similar) and discount the invoice/sales receipt using that.    

That's awesome I understand perfectly thank you so much.

One last question when I'm creating a product I have to have QuickBooks online plus right?

Hi there, casualheroescard. 

Yes, you're right. You'll have to get or upgrade your plan to QuickBooks Online (QBO) Plus to create a product and track the quantity or inventory. 

You can also visit our plans and pricing to see what's best for you. 

If you have further concerns or ideas, you're always welcome to ask the Community or reply to my post. We're always here to help you, 

Okay one more question. So I upgraded to QuickBooks Plus and I've started doing credit memos and adding inventory. I also think that using service and doing packs for credit or wins would be a great idea.

I'll ask question is what do I do when the customer uses that credit. Would I create an invoice and use a credit to pay it off?

Hello there, @casualheroescard. I'm here to help with your concerns.

Yes, you can apply your customer's credits for future invoices. To avoid confusion, toggle the Automation if you wish to apply the credits automatically or manually. To learn more about this process and the steps involved, please refer to this helpful article on using credit in QBO. Create and apply credit memos or delayed credits in QuickBooks Online.

Additionally, you can check this article on how to process a payment from a customer: Record invoice payments in QuickBooks Online.

Return to this thread if you have more questions about credits in QBO. We'll be here to help.

@casualheroescard 

If you create a credit memo for the inventory trade, and you want that credit to be on the customer's account then, yes, you need to create an invoice to use the credit.  So, when you want to apply the credit to the customer's next purchase, create an invoice and save it.  Then, go to receive payment, apply the credit, and take payment for the balance if necessary.  

IMO, if you give the customer a credit or prize that does not need to be in QB it's best to use a sales receipt and not an invoice.  A sales receipt is designed to be used when customers pay at the time of purchase which is better for a retail store.  Invoices are designed to be used when the payment date is in the future.  When using a sales receipt, you can create a service product called "Discount" or "Prize Discount" or "Store Credit" or whatever you want.  When you set up a service discount product, under 'Income account' select either a sales revenue account (if you want to see that on your P&L as a reduction in revenue) or an expense account (if you want to see that on your P&L as an expense).   It's up to you how you want to track those discounts and see them listed on your P&L.  In either case, when you add the discount service product to the sales receipt, enter it as a negative amount and that will reduce the amount due from your customer and record that discount either as a reduction in revenue or an increase in expense depending on what account you selected when you set up the discount service product.