Save Money by Using a Credit Memo Instead of a Discount

I heard a consultant once say the discount is evil and must be destroyed! That’s a little strong, I’ll admit, but I’ll bet he trains his clients not to use it.  However, he was driving home a valid point which is my discussion today. This is VERY important for those of you who collect/pay sales tax.

Here’s the situation. You invoice a client and there are taxable Items on the Invoice. For whatever reason, when you receive the payment, which is less than the full amount of the Invoice, you discount the Invoice in the Receive Payment window and code the discount to your Chart of Accounts. In this window, there is no way to apply that discount for a specific line item on that Invoice.

This causes a couple problems.

  • When you go to run a report based on Items such as Sales by Item Summary or the Job Profitability Summary or Detail Report, those discounted Items will NOT be reflected in those reports.
  • The bigger issue may be that those discounts,  which are reductions in income, do not show in your Sales Tax Revenue Summary or the Sales Tax Liability Reports either. So you could be paying more in sales tax than you need to. And in today’s economy that’s definitely something you don’t want to be doing!

The solution is to use a Credit Memo instead. (It’s easier in the newer versions of QuickBooks) and you can then apply the Credit Memo to the Invoice. When you create a Credit Memo, you get to choose the Item that’s been discounted.  It will then show in your Item-based reports, including your sales tax reports.  This way, you won’t overstate your taxable income or overpay your sales tax.

If you think you’ve overpaid in the past, that’s a discussion to have with your accountant. But for the future, using the Credit Memo will be your better method. I’d love to hear about any savings you find!

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