Credit note is an amount which credits customer /operational entity account through adjustment. It is the post-invoice credit adjustment given towards a charge or account. It is used for billing corrections.
Through credit notes, amount is deposited into the account s of a customer or an operational entity . Credit notes are given to a party in the following two ways:
Account level: When the credit note is given towards an account, the adjustment amount is credited to the party at account level.
Charge level: When the credit note is given towards invoice charges, the adjustment is given to individual charges in an invoice. If credit note is towards charges, the effective charge price decreases. In such case, if there is any tax associated with, then the tax amount is calculated and affected.
For example:
If a customer has paid an amount of Rs.200 towards a service, but due to some reasons such as discount offered or bad signals etc, an amount of Rs.25 is to be given back to the customer, then a credit note of Rs.25 is generated to adjust this amount.