A credit note is a document issued by a seller to a buyer reducing the amount owed. It is used for returns, overcharges, damaged goods or agreed discounts after an invoice has been issued.
Credit notes are a standard part of business transactions. When you need to reduce the amount a customer owes - whether due to a product return, an overcharge, damaged goods or a negotiated discount - you issue a credit note rather than modifying the original invoice. This maintains a clean audit trail and proper documentation. Credit notes should reference the original invoice number, clearly state the reason for the credit and include the correct tax treatment (reversing the GST/VAT on the original transaction). In Xero, credit notes can be created against customer invoices and either applied to outstanding invoices or refunded. Similarly, supplier credit notes reduce your accounts payable. Proper credit note management is important for accurate GST/VAT reporting - you need to ensure that the tax on credited amounts is reversed in the correct period. SortBooks matches incoming credit notes from suppliers to the correct original transactions and ensures the GST/VAT adjustment is correctly recorded.
SortBooks helps with the bookkeeping behind credit note by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing credit note by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
An invoice is a document sent to a customer requesting payment for goods or services provided. It includes details of the transaction, payment terms and the amount due.
Accounts receivable (AR) is the money owed to your business by customers who have purchased goods or services on credit. It is a current asset on your balance sheet.
Accounts payable (AP) represents the money your business owes to suppliers and vendors for goods or services received but not yet paid for. It is a current liability on your balance sheet.
GST is a broad-based consumption tax applied to most goods and services. Businesses collect GST on sales and claim credits for GST paid on purchases, remitting the net amount to the tax authority.
A refund is the return of money to a customer for returned goods, cancelled services or overcharges. It reverses the original sale and associated GST/VAT.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.