Spoiled items returned

Our product is perishable so when it is unsold, the retailer simply throws it away and sends us a notice that it was spoiled and not sold. They take the amount to be credited (full price they paid) off the next payment to us. I looked through the guides and forum and each approach suggested seemed to add stock back to inventory. In our case, the items are not returned to us so I do not want to add them back to inventory. Any suggestions to how I should handle this?

In this case you would issue retailer (your customer) credit note under Credit notes tab.

But since you won’t be adding inventory back. Don’t use any inventory accounts on credit note. Instead create some expense account called Spoiled inventory or something like that and use this account on credit note.

What will happen is that instead on inventory on hand being debited, you will debit an expense thus your expenses will increase instead of your assets.

Hi-I followed this advice and it works but I have one more question. Say the invoice was $2500. When I received payment, the amount was $2000 because they deducted $500 for spoiled inventory. I have been recording $2500 as income in the bank account because that was the initial invoice amount. I then have a credit note for $500 allocated to that invoice. But now I am thinking that this double counts the $500. Once as income, once as a credit note. Should I be reducing the amount received to the actual amount received after the spoiled inventory is deducted?

Why do you think so? Credit note is basically negative sales invoice. So it will offset either fully or partially amounts on the invoice.

Right. I guess an easier way to ask the question is what impact do credit notes have on the bank balance. In my example, I recorded $2500 as money received. In actual fact I received $2000 because the customer deducted the spoiled inventory. My bank account in Manger thinks I received $2500 AND issued a credit note for that invoice.

Credit notes have never any impact on bank balance.

Credit notes merely record credit to customer. This credit can be then applied to unpaid invoice (if customer hasn’t paid yet) or can be retained in customer credit account and credit can be applied to future invoice issued to customer.

Got it. Thank you.