How to cancel an invoice?

Example, I Created a Tax invoice in the month of Feb 15th. Due to some issues Customer is not willing to pay the amount.

Here we need to cancel that Tax Invoice, But after cancelling the Tax Invoice also it has to be view-able in Invoices section and it shown as “cancelled”.

Well, strictly speaking there is no such a thing as marking invoice as cancelled and be done with it.

Your customer has already received an invoice, they now have to receive new document notifying them of credit being issued to them which means they won’t have obligation to pay the invoice. This document is called Credit Note and you can create it under Credit Notes tab.

When you issue credit note to customer for $1,000, the amount will go to account called Customer advance payments (the name might be unfortunate but it is an account that holds the credit for now).

The next step, you want to do, is to offset Customer advance payments with the original invoice. This is basically saying this credit note is not to give customer future credit, it is to zero-out unpaid invoice. You do it by journal entry (Journal Entries tab)

Journal entry will have two lines:

  1. Select account Customer advance payments, then select customer and debit amount $1,000
  2. Select account Accounts receivable, then select invoice and credit amount $1,000

What about tax?

Use the same tax code on credit note as you used on original invoice. In this case, you want credit note to look identical to invoice (the same amounts, the same tax codes)

In the latest version of, there is no more Customer Advanced Payments account right? as i can see the credit will shown as minus figure in Account receivable.

When i cancelled the Tax Invoice by creating a new Credit Note, everything goes fine. Except for the Inventory Profit Margin report. it has extra profit (which match the Quantity in CN x (average profit margin).

In the inventory transaction. CN transaction “created” inventory in to offset the cancelled Invoice. maybe because of this, the system assume total quantity sold = Purchase quantity + “CN” quantity.

The old account was called Customer credits, but your understanding of behavior is correct.

I assume when you refer to a tax invoice, you mean a sales invoice (which might have that header, depending on what tax code you have chosen). If the price on the credit note was the same as the price on the sales invoice, all your inventory reports should be as though the sale was never made. How did you create the credit note? The easiest way is to copy the sales invoice as described here:

It sounds like you might have created the credit note at inventory purchase cost rather than sale price.

I’m not sure exactly what you are suggesting here. The quantity on hand will equal the sum of all purchased quantities minus the sum of all sold quantities plus the sum of all quantities returned by credit note. (I’m neglecting any write-offs.)

Hi Tut, after i create CN for the Sales Invoice. Everything look fine.
EXCEPT the Inventory Profit Margin report generated by the system has problem

For example (see my screenshot):
My total Sale to Customer A initially is 460k, after i cancelled 294.4 k sales by issuing CN.
The actual Sales should be 165.6k [460k - 294.4k]. However, the report show 754.4k as sale which is 460k + 294.4k as sales.

  • (Note : Only the Profit margin figure is maintain)
    Before issue CN Total sales invoice 420k

After issue CN to cancel sales 294.4k --> Sales figure increase…

This cause my Inventory Profit Margin report not accurate.

Your screen shots only show that if you sell more, you make more money, at exactly the same profit margin. That’s exactly what you should expect.

What they do not show is the source of any problem, because they don’t provide the sales invoice and credit note you say lead to a mistake. But if I accept your statements that you sold 460k and cancelled 294.4k, my first suspicion would be that you wrote the credit note for a negative number. Credit note amounts should be positive. Manager knows what to do the sign because it is a credit note.