Explaining the SUPPLIER-CREDIT process (RMA Process)

One question often posted is how to correctly create a Supplier (Vendor) Credit in Xero / QBO.

The process ConnectWise recommends can create more confusion and they also recommend that you create the credit note directly in Xero/QBO. As a general rule, you can create negative PO for Non-Inventory Items, which will in turn create a Supplier Credit Note in Xero.

The problem is that you can't create a Negative QTY Purchase for Inventory Items, these need to be completed as an Inventory Adjustment. Once you create an Inventory Adjustment, you then need to create a Credit Note to offset the Adjustment Account directly in the Accounting System.

We recommend the creation of the following entities in ConnectWise Manage, which will help fulfill the process:

  1. New Inventory Adjustment Type (Supplier Credit)
  2. New Sub Category under "Miscellaneous" for Supplier Credit
  3. New Product called "SUPPLIER-CREDIT"
  4. New Mappings Mapped Accordingly

    > Inventory Adjustment: Inventory Adjustment (Returned Stock)

    > Revenue-Product: Miscellaneous/Supplier Credit

    > Revenue-Agreements Product: Miscellaneous/Supplier Credit

Credit notes are processed in the following way.

Where the Part being Credited is an Inventory Class Product

  1. Create an Inventory Adjustment (Returned Stock)

    > Reduce the Inventory on this basis that the stock has been returned

    > Inventory Adjustment will post (the cost) to B3.11499

  2. Create a Purchase Order

    > Add Non-Inventory Product (SUPPLIER-CREDIT)

    > Add +'ve QTY

    > Add -'ve AMOUNT

    > Add Part Code, Description, Serials

The above will then.

  1. Reduce Stock (posting to Inventory Adjustment Balance Sheet Account)
  2. Reduce the Inventory Return Account (by the Credit Above) which is a Non-Inventory Product


You will then need to ensure that the Inventory Adjustment Account is cleared at the end of the process, as you are returning Stock, and reducing the Asset value. If the item is Non-Inventory, then you should return the "Product Sold" as this will then reduce COGS directly.

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