How to allocate a credit note in QuickBooks

The adjustment note has to exist before it can be allocated. If it isn't saved yet, create it first with the how-to on creating a credit note, then come back here.

Decide whether QuickBooks should do the allocating. With the setting on, it applies notes to the customer's oldest open invoices without being asked. Intuit suggests turning it off if you raise a lot of invoices and adjustment notes for customers, or if particular notes have to go against particular invoices.

Bear in mind Intuit's note that the setting only affects the next invoice created, not existing invoices in Receive payment. Any note the setting hasn't applied goes on by hand, with the steps below.

1. Select + New (or + Create), then choose Receive payment.
2. From the Customer dropdown, pick the customer. When they have credits, the form includes a Credits section.
3. In the Outstanding Transactions section, select the open invoice the note should reduce.
4. In the Credits section, select the adjustment note, or the notes, you're applying.
5. In the Payment column against that invoice, enter how much of the credit to put towards it.
6. Leave the Payment method, Reference no, Deposit to and Amount received fields blank.
7. Complete the rest of the form, including the Payment date.
8. Check the total is right with the note applied, then select Save and close.

When QuickBooks allocates a note automatically, the outcome depends on the amounts. A note equal to the invoice leaves both showing as Closed. A smaller note shows as Closed and leaves the invoice Partial. A larger note clears the oldest open invoice and moves on to the next oldest, and if no open invoices remain, the note's status shows as Unapplied.

With the setting off, a note you haven't linked stays open alongside the invoice. The Customer Balance Detail report shows open balances on both, and they appear as Open on the Customer and Sales transaction pages until you apply the note. Afterwards, the Customer Balance Summary report, under Reports and Standard reports, shows the customer's open balance in its Total column.

An automatic allocation that landed on the wrong invoice can be taken off. Open that invoice and select the blue link for the credit applied, which opens the payment transaction. Select More, then Delete, and select Delete again to confirm. That removes the payment transaction linking the credit to the invoice.

No Credits section in Receive payment? It only appears for a customer who has credits. Turned the setting on, yet an existing invoice still shows the full amount owing? The setting doesn't reach invoices already in Receive payment, so apply the note to that one by hand.