Price corrections, wrongly made invoices – all this and even more can happen with suppliers and as such, it also happens that they are submitting credit invoices to adjust the original ones. All is fine and good since you’re having to pay less, but how about the accounting, what should be done there? Essentially same as you’d do with your own sale invoices, you need to credit purchases now. For regular services and for goods you’ve already sold it’s fairly easy in fact. In such cases your accounting entry should be as follows:

Db: Payables to suppliers
Cr: Expense account the initial expense was charged to

In such rare occasions where the goods haven’t been sold yet however (provided the credits are done for goods purchases), it’s not the expense you should adjust, but the inventory. Entries that you should be making:
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You make an initial invoice to your client in the amount either evident in the price lists or coming from the agreement you two signed off. Be the scenario what it is, at a later date, your client discovers that he or she would love a discount in a more considerable amount you didn’t initially agree on. Now, in case you do agree that you’re going to give your client the discount, you should also recognize for this additional rebate given. With the accounting entry to follow what you essentially do, is increase either the expense on the discount account on your income statement or decrease net sales and also decrease the accounts receivable amount (presuming your client has not yet paid for the goods or services they received):
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In case you’ve made the sale, but at a later date it turns out the customer isn’t all that interested in the goods and wants a full refund, you are first off stuck with the goods, but what’s more, you should also credit your sales to full. Provided of course your customer is eligible for a full refund, your sales should in fact be less by the amount refunded. Note here that it’s not expense in essence, but just decreasing the net sales amount on your income statement. It is not acceptable to still show full amount in sales and then recognize the expense on some other account. Anyhow, the accounting entry for a full credit is as follows:
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There are often times you have to estimate for you expenses – you have to take into account your knowledge of the situation at the time and make your best judgment call. It’s called “making an estimation in the accounts” and it’s perfectly normal. Having to estimate certain expenses like bonuses, provisions for legal cases etc., is something that happens every now and then and there’s nothing wrong with having an estimated amount in the accounts. One thing to watch out for with estimations however is their precision and adjustments if need be. If the estimated amount is a longer term provision, undoubtedly at every balance sheet date you have some additional information or more hindsight as to the amount of the provision in the accounts.

If the new estimation is in fact bigger than the previous amount, you just have to charge for more expenses. Note however, that if the previous estimation was done in the prior period, this new additional charge is always charged into the current period the new estimation was done in. Changes in estimations are always recognized in the period the estimation was done in and not in prior periods, so it’s never retrospective. As such, in the current period, your accounting entry is as follows:
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There are types of services which require that you make a one-off advance payment for a longer period. Essentially what happens is that you’re charged a fee that grants you access to services for a specific term, like a year for say. Whether it’s financially wise to pay up a bigger amount one-off is one thing, but the accounting for such expenses is pretty strict. By nature expenses should be recognized within the period the benefits are received. As such, these payments should be yes done at the time the invoice has its due date, however the recognition on the financial statements is somewhat longer time wise.

Once you receive the invoice, your initial entry is as follows:

Db: Prepaid expenses
Cr: Payables to suppliers
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