There are times when your suppliers make mistakes with their invoices, i.e. the amounts are wrong, the prices are misstated or there are inaccurate discounts given and so on. In such situations your suppliers issue credit invoices (obviously this is subject to you informing them of the mistake most of the times).
How would you come about however treating a credit invoice from your supplier? For an example let’s say that your supplier issued a wrong invoice with the unit price of 10 CU instead of 9 CU thus resulting in a total amount of 100 CU instead of 90 CU that it was supposed to be.
Your initial accounting entry was as follows:
| # | Debit-Credit | Account name | Amount | ||||
| 1 | Debit | Inventory or Expense account | 100 | ||||
| Credit | Payable to supplier | 100 | |||||
Now, as you receive the credit invoice with the proper amount, you go about and make the following entry:
| # | Debit-Credit | Account name | Amount | ||||
| 1 | Debit | Payable to supplier | 10 | ||||
| Credit | Inventory or Expense account | 10 | |||||
Note here that if the original invoice relates to something that is accounted directly into expenses, the credit invoice is then also credited onto the same account on the income statement thus reducing the original expense. However, if the original invoice was for goods that are still unsold when the credit invoice is received, the new invoice is then credited onto the inventories account instead thus reducing the Inventory amount on your balance sheet.