Adjustments

What are Adjustments?

Adjustments are corrections and special handling of transactions that deviate from the normal flow. These include using customer credits to pay invoices, writing off unpaid invoices, canceling invoices, and issuing credits to customers.

Unlike revenue streams (creating new invoices) or cash movement (money in/out), adjustments correct or modify existing transactions.

Transaction Types

Applied Balance

Customer account balance applied to pay invoices.

When it appears: When customer credits or prepayments are used to pay an invoice

Affects:

• Customer Balance: Decreases (credit used)
• Account Receivable: Decreases (invoice paid with credit)

Examples: Customer has $50 credit from previous overpayment, applied to new $100 invoice; gift card balance used to pay for subscription

Uncollectible Invoices

Invoices written off as bad debt (uncollectible).

When it appears: When you determine an invoice will never be paid and write it off

Affects:

• Account Receivable: Decreases (no longer expecting payment)
• Deferred Revenue: Increases (no longer obligated to deliver service)
• Taxes: Increases (tax liability reversed)
• Recognized Revenue: May be affected if revenue was already recognized

Examples: Customer business closed and cannot pay, repeated collection attempts failed, bankruptcy filing

Voided Invoices

Invoices canceled before payment.

When it appears: When you cancel an invoice that was created in error or no longer valid

Affects:

• Account Receivable: Decreases (invoice removed)
• Deferred Revenue: Increases (obligation removed)
• Taxes: Increases (tax liability removed)

Examples: Duplicate invoice created by mistake, subscription enrollment error, wrong pricing applied and invoice voided to recreate

Credit Notes

Credits issued to customers for various reasons.

When it appears: When you issue a credit memo to a customer's account

Affects:

• Customer Balance: Increases (customer has credit to use)
• Deferred Revenue: May increase (if related to undelivered service)
• Taxes: May be affected
• Recognized Revenue: May be affected (if related to delivered service)

Examples: Service quality issue, goodwill credit, billing error correction, partial service failure

How Adjustments Work

Applied Balance Example

Customer has $50 credit from previous overpayment:

Starting state:
- Customer Balance: +$50 (customer has credit)

New invoice created: $100
- Account Receivable: +$100
- Deferred Revenue: -$100

Customer applies $50 credit to invoice:
- Customer Balance: -$50 (credit used)
- Account Receivable: -$50 (partial payment)

Remaining balance: $50
- Customer pays remaining $50 with credit card
- Cash: +$50
- Account Receivable: -$50

Uncollectible Invoice Example

Customer owes $110 but went out of business:

Original invoice:
- Account Receivable: +$110
- Deferred Revenue: -$100
- Taxes: -$10

Written off as uncollectible:
- Account Receivable: -$110 (no longer expecting payment)
- Deferred Revenue: +$100 (no longer obligated to deliver)
- Taxes: +$10 (tax reversed, won't remit to government)
- Recognized Revenue: $0 (no revenue was earned)

Net result: Back to $0, as if invoice never existed

Voided Invoice Example

Invoice created with wrong pricing, voided to recreate:

Wrong invoice created: $150
- Account Receivable: +$150
- Deferred Revenue: -$150

Invoice voided:
- Account Receivable: -$150
- Deferred Revenue: +$150

Correct invoice created: $100
- Account Receivable: +$100
- Deferred Revenue: -$100

Credit Note Example

Service outage, $25 credit issued to customer:

Credit note issued:
- Customer Balance: +$25 (customer can use this credit)
- Recognized Revenue: +$25 (if service was already recognized)
OR
- Deferred Revenue: +$25 (if service not yet delivered)

Result: Customer has $25 credit to apply to future invoice

Differences Between Adjustment Types

Common Questions

What's the difference between voiding an invoice and writing it off as uncollectible?

• Voided: Invoice was a mistake or no longer valid. Use when invoice should never have existed.
• Uncollectible: Invoice was legitimate, but customer can't/won't pay. Use for bad debt write-offs.

Both reverse the invoice, but they represent different business scenarios and may have different tax implications.

When should I write off an invoice as uncollectible?

A: Write off an invoice when you've determined it will never be paid, typically after:

• Multiple collection attempts failed
• Customer business closed
• Customer filed bankruptcy
• Cost of collection exceeds invoice amount
• Legal advice recommends write-off

Consult your accountant before writing off large amounts.

What happens if a customer pays an invoice I already wrote off?

A: If a customer unexpectedly pays an invoice previously written off as uncollectible, you'll record a new payment transaction that increases cash and recognized revenue (or deferred revenue, depending on service delivery status).

Can I void an invoice after a customer has already paid it?

A: No, you typically cannot void a paid invoice. If you need to reverse a paid invoice, you would:

1. Issue a refund (appears in "Refunds Made")
2. Then optionally void the invoice, or
3. Issue a credit note instead

How is Customer Balance different from a refund?

• Customer Balance (credit): Customer has credit to use on future purchases, money stays in your system
• Refund: Money returned to customer's bank account/card, money leaves your system

Customer Balance is like a store credit; refund is returning actual money.

Can credits expire?

A: This depends on your business policies and local regulations. Some jurisdictions require credits to remain valid indefinitely, while others allow expiration. Check with your legal team.

What if I need to partially void or partially write off an invoice?

A: For partial corrections, you typically issue a credit note for the portion to be adjusted, rather than voiding the entire invoice. This maintains a clearer audit trail.