Enhanced interface

Credit a contract

This topic contains examples of some of the different ways you can credit a contract. The main difference is whether you can use an adjustment to create the credit or if you need to add a negative contract line to the contract in order to achieve the correct accounting.

About crediting a contract

A negative contract line represents a credit for the specific contract, while an adjustment represents a credit for the specific customer. In both cases, the credit can reduce the amount that a customer owes for a current or previously issued invoice.

In Sage Intacct when you want to credit an invoice, you typically create a credit adjustment either in AR or Order Entry and then apply the credit to an invoice. However with contract invoices, an adjustment isn’t always sufficient to completely reverse all of the applicable contract accounts involved with contract invoicing. Depending on the situation, you might need to add a negative contract line to the applicable contract. Then walk the negative contract line through your billing and revenue processes as applicable.

When to use a negative contract line

You can solve many credit scenarios by adding a negative contract line to the applicable contract. Use a negative contract line when you need to:

Make a concession to the customer, such as when the customer is dissatisfied with service.
Document an upgrade or downgrade to existing service (Debook).
Set up a recurring credit that you want displayed on more than one customer invoice.
Show a discount line on an invoice. See Discount a contract line for discount details.
Zero out an invoice that you can't delete. See Reverse the effects of a contract invoice.

When to use an adjustment

You can choose to use an adjustment when you need to:

Refund a payment
Credit an overpayment
Adjust contract balances when you cancel a contract line
Adjust contract account balances after a contract completes its term

If you use an adjustment to credit a contract invoice, the contract journal balances and contract reports might not reflect the credit accurately. If you want reports to always display the correct journal balances, use a negative contract line to document the credit.

Use a negative contract line

There are two types of negative contract lines:

Line type	Description
Debook	Has a negative Quantity and a positive Rate, which results in a negative Flat/Fixed amount. Also occurs when the Quantity is negative and the Flat/Fixed amount = 0.00. A Debook line that is included in an MEA will then have a negative fair value that will be included in the MEA calculation. The contract line reallocates to a negative revenue amount and has a revenue schedule.
Discount/Credit	Has a positive Quantity and a negative Flat/Fixed amount. A Discount/Credit line that is included in an MEA automatically reallocates to 0.00 and has no revenue schedule. A Discount/Credit line that is not included in an MEA will have a revenue schedule.

You can customize the billing and/or revenue schedules for the negative contract line to synchronize with the other contract line schedules from the same contract as applicable.

If you want to use a negative contract line to zero out an invoice, see Reverse the effects of a contract invoice.

For Discount/Credit type contract lines, consider creating one or more items named "Credit" to make credits easier to track. You can attach default billing and/or revenue templates to the credit items.

Learn more about negative contract lines.

Subscription	Contracts
Regional availability	Australia Canada South Africa United Kingdom United States
User type	Business
Permissions	Contract: List, View, Add, Edit, Delete

To add a negative contract line:

Open the applicable contract in Edit mode.
Select Add located above the top-left corner of the Contract lines table.
The Contract line popup window appears.
Use the Item dropdown list to select the desired item. For Debook contract lines, select the same item that is in the existing contract line that you’re downgrading or upgrading.
Use the Billing method dropdown list to select Fixed price.
Do one of the following:
- If you’re using the credit to reduce the amount of an invoice, enter a positive Quantity and a negative Flat/Fixed amount. This will result in a Line type of Discount/Credit.
- If you’re using the credit to reduce the quantity of another Sale contract line during its term, enter a negative Quantity and a positive Flat/Fixed amount. This will result in a Line type of Debook.
Both Lines types result in negative invoice amounts. The only difference is how they’re treated in an MEA. If the contract line isn’t participating in an MEA, the Line type may only be useful for reporting purposes. Follow your company's business processes on how you should document negative value contract lines in different accounting scenarios. Learn more about negative contract lines.
Enter the applicable billing information in the Billing section. There are multiple ways you can choose to set up billing for the credit. See Credit contract line examples for information on how to set up billing for common credit scenarios.
Enter the applicable revenue template information in the Revenue section. There are multiple ways you can choose to recognize the credit. See Credit contract line examples for information on how to set up revenue for common credit scenarios.
Select Post to save the contract line.
To include the credit in an invoice, select the negative contract line and other applicable contract lines when you generate an invoice for the contract. Learn how to generate contract invoices.
To recognize revenue for the credit, select the negative contract line schedule entry when you post revenue for the contract. Learn how to post contract revenue.
To apply the credit to the invoice, use the Receive payments page. Learn how to receive payments.
If Accounts Receivable is configured with Auto-apply inline credits to AR sales invoices set to true, the negative contract line is automatically applied to the invoice upon invoice generation.

Credit contract line examples

The credit examples here are similar to how you would document a contract discount. See Discount a contract line for more examples that you could use for credit contract lines.

You can use a Discount/Credit or Debook type in either of these examples. Follow your company's business process to determine how you want to document negative contract lines.

Example - One-time credit

Say the sales person waived the one-time setup charge associated with a subscription product in order to make the sale. In this scenario, you want the credit to appear on only one customer invoice and you want to recognize the credit immediately. To do this, set up the Billing and Revenue sections for the credit contract line as in the following table:

Field	What to enter:
Contract line Start and End dates, GL posting date, and Revenue template Start and End dates	The date you want to invoice the credit. For example, March 30, 20YY (where YY is the desired year).
Billing method	Fixed price
Flat/Fixed amount frequency	One-time
Flat/Fixed amount	The amount you want to credit expressed as a negative value. For example, -50.00.
Revenue templates	Select the applicable revenue templates for the applicable journals.

Example - One or more months free

Say you have a dissatisfied customer who is threatening to cancel their subscription for bottled water that is currently 19.00 per month. You offer to give the customer two months of free water. In this scenario, you want the credit to appear in the next two invoices, but you want to spread the credit recognition over the remaining contract line recognition term. To do this, set up the Billing and Revenue sections for the credit contract line as in the following table:

Field	What to enter:
Contract line Start date and GL posting date	The date you want the credit to be available for invoicing. For example, March 30, 20YY (where YY is the desired year).
Contract line End date	The last date you want the credit to be available for invoicing. For example, April 30, 20YY (where YY is the desired year).
Billing method	Fixed price
Flat/Fixed amount frequency	Include with every invoice or Use billing template
Flat/Fixed amount	Do one of the following: If Flat/Fixed amount frequency = "Include with every invoice", enter the monthly amount to credit expressed as a negative value. In this example, -19.00 If the Flat/Fixed amount frequency = "Use billing template", enter the total credit amount expressed as a negative value. In this example, -38.00.
Billing template Start date End date	Only applicable if Flat/Fixed amount frequency = Use billing template. Select a billing template that will accommodate the number of periods you want to invoice. In this example, we would choose a billing template with only two monthly periods. Enter the applicable billing template Start and End dates to cover the months of free service. In this example, the Start date = 03/30/20YY and the End date = 04/30/20YY.
Revenue templates	Select the applicable revenue templates for the applicable journals.
Revenue template Start date	The same date you entered for the Contract line start date and GL posting date. For example, March 30, 20YY (where YY is the desired year).
Revenue template End date	The same date as the contract End date. The revenue template End date can extend past the contract line End date.

Credit contract lines in MEAs

If the credit contract line will be participating in an MEA, see Negative contract lines for examples of how the system treats Discount/Credit and Debook contract lines in MEAs.

Credit contract lines and Digital Board Book

If the credit contract line pertains to an item for which MRR is enabled, the DBB category defined in the contract line's Change type will be reduced by the applicable amount. You can choose the following Change types for the credit contract line: New MRR, Add-on MRR, or Renewal upgrade. Learn how the Software DBB tracks MRR.

Use an adjustment

You may choose to use an adjustment if you need to do the following:

Refund a contract invoice
Process an overpayment
Cancel a contract line
Adjust contract balances after the contract ends

Refund a contract invoice

The Order Entry adjustment transaction that you use for this procedure should be set up to offset Billed or Paid Sales Revenue, as applicable. See your Intacct administrator for information on which adjustment transaction you should use for contract invoices.

To refund a contract invoice:

In Accounts Receivable, reverse the posted payment. This removes the payment from the contract invoice and sets the contract invoice's Payment status to Open.
In Order Entry, convert the contract invoice into an adjustment transaction for the payment amount.
In Accounts Receivable, apply the credit to the contract invoice using the Receive payments page.
In Accounts Payable, set up the customer as a one-time use supplier.
In Accounts Payable, create a bill to refund the money owed to the customer, making the supplier you created the payee.
Pay the bill per your company's business process.

Process an overpayment

In Accounts Receivable, create an AR adjustment with type = Credit memo for the overpayment amount.
In Accounts Receivable, apply the credit to a contract invoice using the Receive payments page.

Adjust contract balances when you cancel a contract line

Typically, you may only need to adjust contract balances if the billed amount prior to cancellation will never be paid. In this scenario, you can have Intacct automatically create the adjustment when you cancel the contract line. Learn more about canceling a contract line.

However, if you’re using two journals and the contract line's Billed Deferred Revenue is different in journal 1 and journal 2, you need to create a manual AR adjustment.

To create a manual AR adjustment for a canceled contract line:

In Contracts, cancel the applicable contract line.
In Accounts Receivable, create an AR adjustment with Adjustment type = Credit memo. The credit memo should debit Billed Deferred Revenue and credit Billed Sales Revenue.

If this might overstate your sales revenue, create another AR credit memo that debits Billed Sales Revenue and credits Accounts Receivables.

Adjust contract balances after contract completes its term

After a contract reaches its end date or was renewed prior to the end date, you can't add a contract line to it. In this scenario, you need to create an adjustment to credit the applicable account balances.

To credit a contract after it completes its term:

In Accounts Receivable, create an AR adjustment with Adjustment type = Credit memo. The credit memo should reverse the applicable contract account balances.