What is a credit note?

• A. A receipt of payment issued to the buyer after payment.
• B. A form used to apply for credits from the supplier.
• C. A document issued to correct a previously issued invoice, reducing the amount payable.
• D. A quotation for a future order.

Answer: (C)

A credit note is a document issued by the seller to correct something on a previous invoice or to record a reduction in the amount the buyer must pay (for example, due to returned goods, an invoice error, or an agreed allowance). It helps keep the seller’s and buyer’s accounts in line by reducing the amount receivable and the amount payable accordingly. It’s not a receipt confirming payment, nor is it a form to request credits from the supplier, and it isn’t a quotation for a future order. For example, if an invoice was £200 but £50 of goods were returned, the seller would issue a credit note for £50 to reduce the amount owed to £150.