ORACLE CORPORATION

Oracle Receivables
Using Credit Memos in Oracle
Receivables Release 11i

Author: Frank Halvey

Creation Date: May 14, 2002
Last Updated: May 14, 2002
Version: 1.0
Contents

Overview.................................................................................................................................. 1

Credit Memo Setup................................................................................................................. 2

Credit Memo Setup - Continued........................................................................................... 3

Credit Memo Setup - Continued ................................................................................................ 4

How to Create a Credit Memo Transaction ........................................................................ 5

How to Create a Credit Memo Transaction - Continued .................................................. 6

How to Create a Credit Memo Transaction - Continued............................................................ 7

Credit Memos Having Tax or Freight .................................................................................. 8

Accounting for Credit Memos............................................................................................... 9

Accounting for Credit Memos - Continued....................................................................... 10

Credit Memo: Table Information ........................................................................................ 11

Credit Memo: Table Information - Continued ......................................................................... 12

Troubleshooting Credit Memos .......................................................................................... 13

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Overview
You create credit memo transactions to reduce the balance due for a transaction. When you credit a transaction,
Receivables creates the appropriate accounting entries and reverses any sales credit assigned to your salespeople.
You can apply Credit Memos to Invoices, Debit Memos, or Commitments. A transaction must be complete before
you can create a credit memo against it. Receivables lets you credit an entire invoice or specific invoice lines. You can
also credit freight for an entire invoice or only for specific invoice lines.

This White Paper will cover the following Credit Memo information:

Credit Memo Functionality Setup

How to Create a Credit Memo
Accounting for Credit Memos
Credit Memo Table Information
Troubleshooting Credit Memos

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Credit Memo Setup

The following setup steps should be reviewed in Oracle Receivables prior to processing any credit memo transactions.

1.) Transaction Batch Sources

Transaction Batch Sources can be defined as Manual or Imported. Manual Transaction Sources are used for manually
entered transactions entered in the Transaction and Transactions Summary window. Imported Transaction Sources
are used for transactions that are imported into Receivables using Autoinvoice.

Transaction Sources Determine the Following for Credit Memo Transactions:

A. How Credit Memos Transactions are Numbered:

· Automatic Transaction Numbering - When enabled for a transaction source, all credit memo
transactions, using the defined source, are automatically assigned the next sequence number.
· Manual Transaction Numbering - When Automatic Numbering is not enabled for a transaction source,
all credit memo transactions, using the defined source, require a transaction number to be provided in
manual entry.

B. How your Credit Memo Batches are Numbered:

· Automatic Transaction Numbering - When enabled for a transaction source, all credit memo
transactions, using the defined source, are automatically assigned the next sequence number.
· Manual Transaction Numbering - When Automatic Numbering is not enabled for a transaction source,
all credit memo transactions, using the defined source, require a transaction number to be provided in
manual entry.

C. The Default Transaction Type for your Transaction

D. How your transactions are validated using Autoinvoice.

Navigation: Receivables Manager: Setup èTransactions èSources

2.) Transaction Types: Credit Memo

Transaction types are defined in Receivables as a way to distinguish your transactions as debit memos, credit memos,
chargebacks, commitments, and invoices.

Transaction Types determine the following for your Credit Memo Transactions:

A. Whether the Credit Memo Transaction Applies to a Customer’s Balance.

B. Default status of a Credit Memo Transaction, when the Transaction Type is used
( Open, Closed, Pending, or Void).
C. Whether the Credit Memo Transaction can be posted to the General Ledger.
D. The Creation Sign of your Credit Memo Transaction, (Positive, Negative, Any)
E. Whether a Credit Memo Application can over apply the amount of the transaction being credited.
(I.E. A Credit Memo for $150.00 Applied to an Invoice Transaction for $100.00).
F. Default Payment Terms, when the Transaction Type is used.
G. Whether Tax is Calculated for your Credit Memo Transaction.
H. Default Printing Option, when the Transaction Type is used.

Navigation: Receivables Manager: Setup èTransactions èTransaction Types

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Credit Memo Setup - Continued
3.) Autoaccounting

Autoaccounting is a feature that automatically creates your general ledger Accounting Flexfields for your
transactions. You can set up Autoaccounting to create Accounting Flexfields that meet your business needs. You
must define your Autoaccounting structure before you can enter invoices and credit memos and you can only define
one structure for each account type

When you run Autoaccounting, Receivables determines the following for your Credit Memo Transactions:

A. Assigns valid Accounting Flexfields to your credit memos and invoices.

B. Automatically generates valid Accounting Flexfields for your Freight, Receivable, Revenue, Autoinvoice
Clearing, Tax, Unbilled Receivable, and Unearned Revenue Accounts.
C. Controls how your Accounting Flexfields are created and defined.

Navigation: Receivables Manager: Setup è Transactions è Autoaccounting

4.) Profile Options

Profile Options are used to specify how Receivables controls access to and processes data. Receivables lets you
govern the behavior of many of the windows that use profile options. Profile options can be set at the Site,
Application, Responsibility, or User level. To change Profile Options at the Site, Application, or Responsibility level,
choose the System Administrator responsibility, then navigate to the Personal Profile values window. Query the
Profile Name field to display the profile options with their current settings, make your changes, and save your work.
You can change profile options at the user level in the Personal Profile values window. Generally, your system
administrator sets and updates profile values at each level. The following profile options can impact how you utilize
credit memos in your instance.

A.) Tax: Calculate Tax on Credit Memos - This profile option determines how tax is calculated on credit memos
imported using Autoinvoice. By Default this profile option is set to No. If this profile option is set to Yes, the
tax engine calculates tax for each imported credit memo without considering the outstanding balances.
B.) AR: Use Invoice Accounting For Credit Memos - This profile option determines whether to assign your
credit memo to the same accounts that are assigned to the invoice you are crediting.
C.) AR: Transaction Batch Source - This profile option determines the default invoice source that will appear in
the Batch field of the Transaction and Credit Memo windows. Receivables only displays batch sources with a
Transaction Source Type of ‘Manual’ in the list of values for this option.

Navigation: System Administrator: Profile è System or Profile è Personal

5.) Freight Carriers (Optional Setup Step)

Define freight carriers to assign additional freight charges to your transactions. You use freight carriers for internal
transfers between organizations as well as shipments to and from customers and vendors. When your freight carriers
are setup, your credit memos use the following information for your Credit Memo Transactions:

A.) Freight Carrier

B.) General Ledger Distribution Account. This is used to capture the costs associated with using the carrier, and
used when you perform an inter-organization transfer and specify freight charges.

Navigation: Receivables Manager: Setup è System è QuickCodes è Freight Carriers

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Credit Memo Setup - Continued
6.) Currency
When entering credit memos, if the credit memo is part of a batch, the default currency is the batch currency.
Otherwise, the default currency is the functional currency. When applying a credit memo to a transaction, the credit
memo currency must be the same as the transaction currency. If you enter a currency other than your functional
currency, enter exchange rate information.

Navigation: General Ledger Super User: Setup è Currencies è Define

7.) Document Sequencing (Optional Setup Step)

Document sequence numbers are unique numbers that can be assigned to transactions you create in Receivables.
Assigning unique numbers to transactions lets you account for every transaction you enter.

When Document Sequences are used it provides the following for your credit memo transactions:

A.) By Assigning unique numbers to each transaction you can ensure that no transactions have been lost or not
posted.
B.) Document sequences generate audit data so even if documents are deleted, their audit record remains.
C.) Document sequences provide an audit trail back from the General Ledger into the sub-ledger, and to the
document that originally affected the account balance.

Navigation: System Administrator: Application è Document è Define

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How to Create a Credit Memo Transaction

To manually create a Credit Memo:

1. Navigate to the Transactions Summary or Credit Transactions window.

2. If you are in the Transactions Summary window, query the transaction to credit, then choose Credit.
3. Enter the batch Source for this credit memo. The default is the batch source of the transaction you are crediting,
but you can change it.
4. Enter the Date of this credit memo. Receivables prints this date on your credit memo.
Note: If this credit memo is part of a batch, the default is the batch date. If there is no batch information, or if the
batch date is before the date of the credited transaction, the default is the current date. If the date of the invoice
you are crediting is later then the credit memo date, the default is the invoice date.
5. If your batch source does not use Automatic Transaction Numbering, enter a credit memo Number.
6. Enter a Transaction Type for this credit memo. The batch source provides the default type, but you can change it.
If this is a credit memo against an invoice or commitment, the default is the transaction type assigned to the
invoice or commitment. You can choose any transaction type with a class of Credit Memo.
7. If the post to GL option of the transaction type you entered is Yes, enter the GL Date for this credit memo. This
date must be in an open period or future enterable accounting period and must be equal to or later than the GL
date of the credited transaction. If the Credit memo is part of a batch, the default is the batch GL date.
8. If you are crediting a transaction that uses invoicing and accounting rules, the appropriate Rules Method must be
chosen:
· Last In First Out (Lifo): Choose this option to back out revenue starting witht he last general ledger
period and reverse all prior periods until it has used up the credit memo.
· Prorate: Choose this option to credit an equal percentage to all account assignements for this invoice.
· Unit: Choose this option to reverse the revenue for the number of units you specify from an original
line of the invoice.
9. Enter the Currency for this credit memo.
10. If you are crediting a transaction that has multiple installments, choose one of the following Split Term Methods:
· First in First Out (FIFO): This method credits the first installment first.
· Last in First Out (LIFO): This method credits the last installment first.
· Prorate: This method credits the installments of the credited transaction and prorates them based on
the amount remaining for each installment.
11. If you are not using Automatic Sequence Numbering, open the More tabbed region, then enter a unique
Document Number for this credit memo. Otherwise, Receivables assigns a number when you complete this credit
memo.
12. To credit only part of the balance due for this transaction, enter the percentage or Amount of Line, Tax, Freight
charges to credit. To credit a specific portion of the charges, enter a negative number in the Amount field. If you
enter a percentage, Receivables calculates the amount, and vice versa.

Percentages are based on the original balance of the transaction you are crediting. Receivables updates the
Balance Due for each type of charges that you credit and creates all of the accounting reversal entries for you.
Receivables also reverses this percentage of the sales revenue and non-revenue credit assigned to your
salespersons.

Note: you cannot enter an amount that would overapply the transaction unless the Allow Overapplication flag of
the credited transaction’s transaction type is set to Yes. To overapply a transaction, choose Credit Lines, then
specify which lines to credit in the Lines window.
13. To credit the entire balance due for this transaction, choose Credit Balance. Receivables reduces the Balance Due
for this transaction to zero for each type of charges.
14. Save your work. Receivables creates all the accounting reversal entries and reverses the amount of sales revenue
and non-revenue credit assigned to your salespersons.

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How to Create a Credit Memo Transaction - Continued

Creating Credit Memos Using Autoinvoice:

1. Navigate to the Run Autoinvoice Window

2. Enter a request Name of Autoinvoice Master Program.
3. Enter the Number of Instances to submit.
4. Enter a Transaction Source and Default Date for this submission. These parameters are required. The Default
Date must be in an open or future enterable period.
5. To limit the transactions AutoInvoice imports, enter selection criteria. For example, enter a Transaction Type,
range of Bill to Customer Names, GL Dates, Ship Dates or Transaction Numbers to import only those transactions.
Leave a field blank if you do not want to limit this submission to transactions matching that criteria. Use the
Transaction Flexfield parameter to specify which lines you want to import.
6. Choose whether to Base the Due Date on Transaction Date.
7. Enter a number of Due Date Adjustment Days (optional).

Creating On-Account Credits:

On-Account credits are credits you assign to your customer’s account that are not related to a specific invoice.

1. Navigate to the Transactions Window.

2. If you are not using Automatic Sequence Numbering, enter a unique Number for this credit. Otherwise,
Receivables assigns a number when you save.
3. Enter the Date and Currency for this credit. The Default Date is the current date, but you can change it. The
default currency is either the currency entered at the batch level or the functional currency, but you can change it
to any currency defined in the system.
4. Enter the batch Source for this credit.
5. Choose a transaction class of Credit Memo.
6. Enter a transaction Type.. You can choose any transaction type with a class of Credit Memo.
7. If the Post to GL option for this transaction type is Yes, enter the GL Date for this credit. The batch source
provides the default GL date, but you can change it. The GL Date must be in an open or future period.
8. Enter the Bill-To Name and Location of the customer account to credit.
9. If your transaction batch source does not use Automatic Invoice Numbering, open the More tabbed region, then
enter a unique Document Number.
10. Choose Line Items, then enter ‘On Account Credit’ in the Description field.
11. Enter the Amount of this on-account credit as a negative number .
12. Save your work.

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How to Create a Credit Memo Transaction - Continued

Batching Credit Memos:

Grouping credit memos into batches, you can view the difference between your control and actual batch totals as you
enter credit memos. These differences alert you to data entry errors or duplicate entries.

1. Navigate to the Transaction Summary or Credit Transactions window.

2. Query the transaction to credit, then choose Credit in the Transaction or Transaction Summary window. If you
chose Credit Transactions from the Navigator, enter the number of the transaction to credit in the Find
Transactions window. You can use selection criteria in the Find window, if you do not know the transaction to be
credited.
3. To add the credit memo to an existing batch, choose a Batch type of ‘New’, then enter the Batch Name to which
you want to add this credit memo, or select from the list of values.
4. To add a credit memo to the same batch to which the credited transaction belongs, choose a Batch type of
‘Credited Transaction’. When you do this, Receivables displays a decision window.
5. To derive the default values for this credit memo from the batch, choose Yes. To derive the default values from
the transaction you are crediting, choose No. Default values include the transaction source, credit memo date,
transaction type, GL date, and currency.
6. Enter the credit memo, based on the instructions provided for crediting transactions.
7. Save your work.

Unapplying Cash When Crediting a Transaction:

Receivables lets you unapply cash that was previously applied to a transaction and create a credit memo for that
amount. For example, if a customer returns a product for which they have already paid in full, you would need to
unapply the cash for that transaction, and then create a credit memo for the full amount.

1. Navigate to the Receipts window.

2. Query the receipt to unapply, then choose Applications.
3. Uncheck the Apply check box next to the transaction.
4. Save your work.
5. Navigate to the Credit Transactions window.
6. Query the transaction from step 3.
7. Create a credit memo for the full amount..

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Credit Memos Having Tax or Freight
If the transactions to be credited will have tax or freight, Oracle Receivables allows you to enter or update tax or
freight information in your Credit Memo Transactions. Freight can be entered for a credit memo or at the credit
memo line level. You cannot enter freight information for a credit memo if the credit memo’s transaction type has
Allow Freight set to No or if you have specified a standard memo line type of ‘Tax’. Likewise, you cannot enter or
update tax information if you have specified a freight memo line or if the invoice line you are crediting has no tax.

When importing Freight Transactions via Autoinvoice, you can link freight lines to transaction lines using the
LINK_TO_LINE_ATTRIBUTE columns (1-15) and LINK_TO_LINE_CONTEXT columns to enter the line transaction
flexfield of the credit memo. These columns can be found in the RA_INTERFACE_LINES_ALL table. Likewise, when
importing tax lines, you can link tax lines to transaction lines using the LINK_TO_LINE_ATTRIBUTE columns (1-15)
and LINK_TO_LINE_CONTEXT columns to enter the line transaction flexfield of the credit memo.

When you import Credit Memos, Autoinvoice ensures that you do not overapply your tax and freight Lines. Also, the
profile option Tax: Calculate Tax on Credit Memos controls how Receivables calculates tax on credit memos that you
import using Autoinvoice. By default, this profile option is set to No and Receivables uses the payment applications
and the line, tax, and freight amounts to calculate tax. If this profile option is set to Yes, the tax engine calculates tax
for each credit memo without considering the outstanding balances.

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Accounting for Credit Memos
Receivables lets you fully or partially credit your invoices while it automatically creates all the accounting reversal
entries for you. You can use the Credit Transactions window or Autoinvoice to create your credit memos. The
accounting is always the same whether the credit memo is imported or manually entered. In the Oracle Receivables
User Guide (release 11i ) there are several examples provided for various Credit Memo Application scenarios (i.e.
Applying Credit Memos to Invoices with rules; Applying Credit Memos to Invoices with Deposits). The following
two examples depict simple credit memo transactions, so as to reflect the general accounting entries involved :

1.) When a Credit Memo is entered against an Invoice, Debit Memo, or Chargeback, you will see the following
accounting entries:

Trx # Account Type Amount GL Debit GL Credit

1 REVENUE -100.00 100.00

TAX -20.00 20.00

FREIGHT -10.00 10.00

RECEIVABLES 130.00 130.00

========== ==========

130.00 130.00

========== ==========

2.) When you enter an On-Account credit, you will see the following:

A.) If you Credit Revenue:

Trx # Account Type Amount GL Debit GL Credit

1 REVENUE -100.00 100.00

RECEIVABLES 100.00 100.00

========== ==========

100.00 100.00

========== ==========

B.) If you Credit TAX:

Trx # Account Type Amount GL Debit GL Credit

1 TAX -20.00 20.00

RECEIVABLES 20.00 20.00

========== ==========

20.00 20.00

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Accounting for Credit Memos - Continued

C.) If you Credit FREIGHT:

Trx # Account Type Amount GL Debit GL Credit

1 FREIGHT -10.00 10.00

RECEIVABLES 10.00 10.00

========== ==========

10.00 10.00

========== ==========

Also, Oracle Receivables release 11i provides functionality for you view your transaction accounting entries in T-
Account format. For example, to view the T-Account entries made for an open credit memo, you would use the
following navigation:

Original Credit Memo Accounting:

1. Navigation Steps: Collections ==>Account Details
2. Enter the Original Credit Memo number in the Trans Num column and click Find.
3. Click on Details for this Original Credit Memo.
4. Click within the Tool Bar Tools ==>View Accounting
5. If you wish to see the T-Accounts for this Transaction click on the T-Accounts Button.

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Credit Memo: Table Information
When a credit memo transaction is created in Oracle Receivables, there are various tables utilized to store the credit
memo information. For the purposes of this paper the information provided is summarized. For more detailed
information regarding the tables, view and column, definitions, please refer to the Oracle Receivables Technical
Reference Manual for Release 11i. The following describes the tables and columns utilized to store credit memo
transaction information:

Credit Memo Header Information:

Table: RA_CUSTOMER_TRX_ALL - Contains one record for each Credit Memo Transaction.

Columns-Description:
CUSTOMER_TRX_ID - Primary Key of the Table.
TRX_NUMBER - Transaction Number
TRX_DATE - Transaction Date
PREVIOUS_CUSTOMER_TRX_ID - Identifier for Invoice Credited

Credit Memo Line Information:

Table: RA_CUSTOMER_TRX_LINES_ALL - Contains one record for each Credit Memo Line.

Columns-Description:
CUSTOMER_TRX_LINE_ID - Primary Key of the Table.
CUSTOMER_TRX_ID - Invoice Identifier/Relationship key to RA_CUSTOMER_TRX_ALL
LINE_TYPE - Receivables lookup code for STD_LINE_TYPE
QUANTITY_CREDITED - Quantity Credited
UNIT_SELLING_PRICE - Selling price per unit for a transaction line.
EXTENDED_AMOUNT - Transaction Line Amount.

Credit Memo Line Distribution Information:

Table: RA_CUST_TRX_LINE_GL_DIST_ALL - Contains one record for each distribution for each line on each
invoice.

Columns-Description:
CUST_TRX_LINE_GL_DIST_ID - Primary Key of the Table.
CUSTOMER_TRX_LINE_ID - Invoice Line Identifier.
CODE_COMBINATION_ID - Account Identifier Linked back to the General Ledger.
AMOUNT - Amount of this record in the foreign currency.
ACCOUNT_CLASS - Freight, Receivable, Revenue, Autoinvoice Clearing, Tax, Unbilled Receivable,
Unearned Revenue, or Charges.
ACCTD_AMOUNT - Amount of this record in the functional currency.
GL_DATE - General Ledger Date.
GL_POSTED_DATE - Date posted to the General Ledger.

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Credit Memo: Table Information - Continued

Credit Memo Payment Schedule Information:

Table: AR_PAYMENT_SCHEDULES_ALL - Oracle Receivables updates this table when activity occurs against a
credit memo.

Columns-Description:
PAYMENT_SCHEDULE_ID - Primary Key of the Table.
CUSTOMER_TRX_ID - Foreign Key to join the RA_CUSTOMER_TRX_ALL for transactions.
CLASS - Classifies Transactions as Credit Memos, Invoices, Debit Memos, Guarantees, Deposits,
Chargebacks, and Receipts.
TRX_NUMBER - Transaction Number of the Credit Memo.
TRX_DATE - Transaction Date of the Credit Memo.
AMOUNT_DUE_ORIGINAL - The Original Amount Due.
AMOUNT_DUE_REMAINING - The Current Amount Due Remaining.
AMOUNT_LINE_ITEMS_ORIGINAL - Original Line amount of the item.
AMOUNT_LINE_ITEMS_REMAINING - Remaining Line amount of the item.

Credit Memo Application Information:

Table: AR_RECEIVABLE_APPLICATIONS - Stores all Accounting entries for Credit Memo and Cash
Applications.

Columns-Description:
RECEIVABLE_APPLICATION_ID - Primary Key of the Table. Identifies the Receivable Application.
PAYMENT_SCHEDULE_ID - Identifies the payment schedule of a credit memo being applied.
CUSTOMER_TRX_ID - Identifies the Credit Memo being applied.
APPLIED_CUSTOMER_TRX_LINE_ID - The line number of a debit item to which a credit memo
is applied.
LINE_APPLIED - Line Amount Applied.
AMOUNT_APPLIED - Amount Applied.

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Troubleshooting Credit Memos
The typical problems with credit memos tend to be experienced when trying to apply a credit memo to another
transaction. Another common problem area is when credit memo transactions are imported via Autoinvoice. In
most instances these issues are caused by the setup steps used prior to using credit memos in an instance. The
following list identifies some of the common issues.

1. Issue: Cannot Apply the full amount of a credit memo to another transaction.

Error Message Experienced: APP-11905 You cannot apply a transaction with a negative amount to another
transaction with a negative balance and vice versa
Explanation: If you are trying to apply a credit memo for an amount that is greater then the invoice amount, the
invoice transaction type needs to be defined such that it allows overapplication. (i.e. A credit memo for $150.00
applied to an invoice of $100.00).

2. Issue: Imported credit memos have missing Freight as the Freight line was imported as a separate transaction
from the credit memo

Explanation: When credit memos are imported having a freight line, the freight line should reference one of the
credit memo lines using the LINK_TO_LINE_ATTRIBUTE (1-15) columns and the LINK_TO_LINE_CONTEXT in
RA_INTERFACE_LINES_ALL. Refer to the Oracle User’s Guide regarding Autoinvoice and Importing Freight
with transactions.

Additional Explanation: Another cause of this issue is the grouping attributes used to group transaction lines
together during the Autoinvoice process. Review the mandatory grouping attributes and the optional grouping
attributes used in your instance to verify what attributes may group the credit transaction information separately.
Refer to the Oracle User’s Guide regarding Autoinvoice and Grouping Rules.

3. Issue: Credit Memo does not use the GL Accounts as defined for the Credit Memo Transaction Type.

Explanation: Check the profile option: AR: Use Invoice Accounting for Credit Memos. If this is set to YES , then
the credit memo associated with an invoice will use the accounting of the invoice.

REFERENCES:

Oracle Receivables User’s Guide for Release 11i

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