How Do I Generate a Credit and Apply a Credit Memo?

Credit Memos operate similarly to Client Payments, reducing the outstanding amount on an invoice. However, the process to issue a Credit Memo differs.

A Credit Memo can originate as a negative Fee Line Item. This is very important. There are a few methods to accomplish this, but in most cases we suggest establishing a one-time Client Account fee that can be converted into a Credit Memo later on.

To issue a Credit Memo, please follow these steps:

Phase 1: Create a Fee

1. Navigate to Client Accounts (Location or Service Fees can also generate credits)

Go to Client Accounts in the main navigation and open the client account you want to credit.

2. Add a New Client Account Fee

Scroll down to the Client Account Fees section and click New Fee.

3. Fill in the Fee Form

Complete the form with the following settings:

• Line Item Category — Select Other
• Amount — Enter a negative value (e.g., -250.00      )
• Header Label — Enter the label that will appear as the section header on the invoice (e.g., Credit Memo      )
• Label — Enter the line item description (e.g., Credit Memo      )
• Billing Style — Fixed
• Frequency — One Time
• Start Date — Set to the first day of the fiscal period the credit should appear in

Click Save to create the fee.

Phase 2: Verify in Billable Revenue

4. Open the Revenue Dashboard

Navigate to Revenue in the main navigation and select Billable Revenue. Use the fiscal period selector to navigate to the period that matches the fee's start date.

5. Confirm the Fee Appears

Click the Client Account Fees tab to verify the fee is listed for the correct client account with the correct negative amount.

Phase 3: Generate the Invoice and Convert to a Credit Memo

6. Generate a Client Invoice

From the Billable Revenue dashboard, generate an invoice for the client. The negative fee will be included as a line item.

7. Open the Invoice

Navigate to Revenue > Invoices, find the newly created invoice, and open it.

8. Click the + Button on the Negative Line Item

Scroll to the Line Items section of the invoice. Locate the negative Credit Memo line item. Click the + icon to the right of it.

9. Select "New Credit Memo" and Move the Line Item

In the modal that appears, confirm New Credit Memo is selected in the dropdown, then click Move Line Item.

Discovery will create a new Credit Memo document and redirect you to it.

Phase 4: Apply the Credit Memo to an Invoice

10. Review the Credit Memo

You are now on the Credit Memo record. Review the Credit Memo Information section to confirm the document number, client account, and total amount are correct.

11. Fill in the "Applied to Invoices" Form

Scroll down to the Applied to Invoices section. Enter the following in the input row at the bottom of the table:

• Invoice # — The number of the invoice you want to apply this credit to
• Applied Amount — Enter a positive value for the amount to apply (e.g., 250      )
• Applied Date — The date the credit is being applied

Click the + button to save the application.

12. Confirm the Credit Was Recorded

After saving, the Applied to Invoices table will show the invoice number, applied amount, and date. The Applied Amount in the Credit Memo Information section will update to reflect the total applied.

13. Verify on the Target Invoice

Navigate to the invoice you applied the credit to. In the Invoice Information section, confirm:

• Total Credit Memos Applied shows the credited amount
• Total Due has been reduced accordingly
• The Applied Payments/Credit Memos sidebar shows the credit memo entry

Accounting Integration

What Discovery records when you send a credit memo depends on how your accounting integration is configured under Settings → Accounting Settings. If no accounting system is selected, sending a credit memo has no accounting effect at all — the memo, its balance, and its application to invoices stay inside Discovery.

Every tenant with an accounting system follows one of two paths, and never both:

QuickBooks Desktop tenants always follow the journal entry path — a credit memo is never posted to Desktop as a transaction.

Either way, the accounting is recorded once, at the moment the memo is sent (whether you email it or print it). A credit memo cannot be sent if its fiscal period is closed.

Journal Entries

A credit memo posts the exact inverse of a client invoice:

A few things worth knowing about the entries Discovery produces:

• Lines are summarized, not copied. Line items that share a revenue GL account — and the same QuickBooks class, when Sync Quickbooks Classes is on — are combined into a single journal entry line. The memo's line items are not reproduced one for one.
• Entries are grouped by fiscal period. Each entry is numbered CM-00000001  , CM-00000002  , and so on, and is dated the memo's fiscal date. Credit memos sent for the same fiscal period keep joining the same entry until it is posted to your accounting system, so a period's memos summarize into one entry.
• Each line is described as Discovery Client Credit Memo #<memo number>  .
• Revenue lines carry the QuickBooks customer. If the client account is linked to a QuickBooks customer, that customer is attached to the revenue lines of the entry, and to any adjusting entries — this is what makes per-customer revenue reporting work in QuickBooks. The Accounts Receivable and sales tax lines never carry a customer. If the account has no linked customer, the entry still posts successfully without one.
• GL accounts must be configured first. Every fee category on the memo needs a revenue GL account, and every sales tax needs a GL account. If one is missing, the credit memo errors out and its journal entries are not created — so review your fee categories and sales taxes before you begin sending credit memos, and contact support if you hit this error.

To send the entries to QuickBooks Online, go to Settings → Quickbooks Online → Journal Entries and choose Send Unposted Entries To Accounting System. Entries are sent one entry at a time; if QuickBooks Online rejects one, the reason is shown against the affected lines, where you can correct the GL account and send again. For QuickBooks Desktop, generate an IIF file from Settings → Quickbooks Desktop → Accounting Exports.

Adjusting Entries

If Create Adjusting Journal Entries is enabled and the memo credits a charge that originated in a different fiscal period, Discovery posts an additional, offsetting entry in the origin period so revenue is recognized in the period the charge belongs to.

• Charge originated in an earlier period → the credit memo's own entry uses your Accrued Revenue GL Account in place of the revenue account.
• Charge originated in a later period → it uses your Deferred Revenue GL Account.

In both cases the adjusting entry, posted in the origin period and numbered ADJ-…  , reverses that balance sheet account against the real revenue account. Both the Accrued Revenue and Deferred Revenue GL accounts must be set for adjusting entries to be created.

QuickBooks Online

With Sync Client Invoices With Quickbooks enabled, sending a credit memo creates a Credit Memo in QuickBooks Online:

• the memo's document number becomes the QuickBooks Doc Number, and the client account's linked QuickBooks customer becomes the Customer;
• each Discovery line item becomes its own sales line, carrying that line's description and amount as a positive credit amount;
• all lines post against a single QuickBooks product/service item, so the income accounts your accountant sees come from that item rather than from Discovery's fee categories;
• with Sync Quickbooks Classes enabled, each line carries its service's QuickBooks class, or your default class where no override applies;
• sales tax is not itemized on the QuickBooks credit memo;
• the transaction is dated the memo's fiscal date, unless Use Client Invoice Date When Posting is enabled, in which case the memo's document date is used instead.

While this setting is on, client payments must be entered in QuickBooks Online rather than in Discovery.

If QuickBooks Online rejects the credit memo, the memo is not sent — no email reaches the client and nothing is recorded in Discovery. The usual cause is a client account that is not yet linked to a QuickBooks customer. If QuickBooks accepts the credit memo but the email to the client then fails, Discovery removes the credit memo from QuickBooks again, so the two systems never disagree about a memo the client never received.

Applying a Credit Memo to an Invoice

Applying a credit memo to a client invoice, or unapplying it, moves balances inside Discovery only. It creates no journal entries and sends nothing to QuickBooks — the accounting was already recorded when the memo was sent.

Voiding a Credit Memo

A credit memo that has been sent can no longer be deleted; it is corrected by voiding it, which is permanent and only possible while its fiscal period is open. What voiding does to your books follows the same two paths:

• Posted to QuickBooks Online — QuickBooks Online does not allow a credit memo to be voided, so Discovery deletes it from QuickBooks instead.
• Journal entry path — entries that have already been sent to your accounting system are left untouched and reversing entries are created for them, numbered CMVD-…   and described Void Discovery Client Credit Memo #<memo number>  . Entries that were never sent are removed outright, along with any adjusting entries.

Voiding also unapplies the memo from every invoice it had been applied to, restoring those invoice balances. Credit memos are not refunded; voiding replaced the earlier refund capability.

If you have additional questions or need more in depth information, please feel free to send us a message using the help beacon in the lower right-hand corner.