Applying a Credit Note Workflow (Deferrals)

To apply a credit note to a deferral schedule, follow this general workflow:

1. Follow the instructions in the Microsoft Dynamics 365 for Finance and Operations documentation to create the originating sales order.

When you add a line to the sales order, set the item as a deferral item (if it is not already a default). Deferral items are set up on the Deferrable Items page.

When you post the sales order, the invoice and deferral schedule are created.

2. Follow the instructions in the Microsoft Dynamics 365 for Finance and Operations documentation to create a sales order for the credit adjustment.

In the Sales order lines area, select Create credit note to create a credit note line. For the credit note line, select Advanced Deferrals, which opens the Sales Order Transaction Deferral page.

On the Sales Order Transaction Deferral page, select Adjust existing schedule, select the originating deferral schedule, and change the recalculation and end dates as needed. If the item for the credit note is deferred, this page is automatically updated with default values for the item.

When you post the sales order with the credit note, the distributions are modified so they are the same as the original invoice. Also, the original deferral schedule is adjusted and the record is applied to the deferral schedule.

3. If you forgot to select Adjust existing schedule on the Sales Order Transaction Deferral page before posting the credit note, you can apply the credit note to a deferral schedule as follows: 
   1. In the Schedules page, open the deferral schedule, and select Apply, which opens the Apply Credit Note (Deferrals) page.
      The page all credit note invoices that are available for the deferral schedule.
   2. Select the credit note lines that you want to apply, and select OK.
      The credit note adjustment is processed and the deferral is adjusted based on the credit note.
   3. If needed, you may need to manually create adjustment journal entries for the General Ledger since the original credit note may have been processed to different accounts.
      For example, the revenue account used is the same as the original invoice. However, the accounts used for discount and consumption might be incorrect. To correct these entries, you must manually transfer the balances from the recognition accounts to the deferral accounts.