How to handle credit note from supplier


I paid an invoice to my supplier, and afterwards they told me they were out of stock on an item, and that they would credit it toward my next purchase.

This is an inventory item, so I need to also fix the quantity on hand.


Enter this transactions as journal entry, see example:

This will reduce Inventory on hand and allocate supplier credit to Supplier advance payments asset account.

Keep in mind, if inventory items were taxable items, you need to select appropriate tax code.


Thank you very much! I have another question, regarding import taxes. My supplier is in China, so I don’t pay tax on any of my inventory items until they arrive, and I get the duties invoice from the courier.

So when I receive this invoice, it’s $4 processing fee, $10 cash on delivery fee, and then $xx.xx Tax. What is the correct way to handle this? I need to pay the set tax amount to the courier, and have it show up on my Tax Payable.


Here are some examples on how to handle this if you are in Australia or United Kingdom but the principle is the same for every country. If you give me specific example for your country, I’ll add it to wiki.