Typically, credit memos are issued by sellers or service providers to their clients to reduce the amount owed by the clients on previous invoices. This credit is applied to the existing invoices, thus reducing the client's accounts receivable (A/R). This type of a client credit is a liability, which you need to refund or adjust.
However, in Core, project credits can be issued to clients prior to refunding them and are liabilities that credit the accounts payable (A/P). You can also issue credits to them to refund their retainers. So credit memos in Core can be used to facilitate two basic functions:
- Enter project credits: You can create a credit memo for a project, post it to the
relevant account and later pay this liability to the client.
- Refund retainers: You can create a credit memo for a client to refund a retainer.
From the accounting perspective, credit memos debit and decrease your income account; on the other hand they credit and increase your A/P.
Note: Credit memos are not linked to the 'Credit' type payments in Core.
For details, please read the Core Help.