In short a credit note is the opposite of an invoice. If a customer returns goods the seller can issue a credit note to account for the value of the goods returned.
For example, after having raised an invoice amounting to £20 + VAT to a customer who purchased 10 widgets @ £2 each they subsequently return 2. The seller would then raise a credit note for £4 (2 x £2) + VAT. The customer is then liable to pay the outstanding balance of £16 + VAT.
All credit notes should be clearly identified as such and show the number and date of the sales invoice to which they relate, as well as the information required for a sales invoice.
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