Reference:

Discounting an Invoice explained in detail >>
Modifying / Deleting / Cancelling a Pending Invoice / Debit Note >>

In a true sense there is really nothing like Cancellation of an Invoice or Debit Note. A transaction once entered cannot ever be deleted. The transaction can only be settled. Therefore even the Cancellation process in a nutshell simply creates a Credit Note of the same amount as the Invoice/Debit Note and settles it with the Invoice/Debit note in question. Lets understand this in greater detail.

Both an Invoice and a Debit Note consist of the following fields:

Invoice/Debit Note Amount: This is the amount of the Invoice or Debit Note
Pending Amount: This is the amount of payment pending on this Invoice or Debit Note

The above amounts will be stored in dual currency, incase your Selling Currency is different from your Accounting Currency
Reference: Currency issues, Conversion Rate, Selling currency and Accounting currency explained >>

Invoice/Debit Note Cancellation

Lets discuss in detail the process of cancellation of a single partly paid Invoice. Taking this example covers every aspect we need to discuss about Invoice Cancellation. Debit Note Cancellation works in the exact same fashion

Lets take a dummy Invoice for a Customer A with the following figures

Transaction ID: 1
Invoice Amount: USD 100 (INR 5000)
Pending Amount: USD 25 (INR 1250)
Conversion Rate: 50

Note the following points about the above Invoice

• As you can see the above Invoice is partly paid to the tune of USD 75 (since the Pending Amount is USD 25 while the Invoice Amount is USD 100).

• Additionally the Selling Currency in this example is USD and the Accounting Currency is INR.

• The conversion rate between both these currencies is taken as 50. This conversion rate is the conversion rate at which the Invoice was entered or created manually or by the System.

Now if you confirm the Cancellation of this Invoice the system will automatically create a Credit Note and balance it against the Invoice resulting in the below final status -

Transaction ID: 1
Invoice Amount: USD 100 (INR 5000)
Pending Amount: USD 0 (INR 0)
Conversion Rate: 50

Transaction ID: 2
Credit Note Description: Cancellation of Transaction ID 1
Credit Note Amount: USD 100 (INR 5000)
Credit Note Pending Amount: USD 75 (INR 3750)
Conversion Rate: 50

There are a few important points to note in the above transaction

• The Credit Note is added and balanced in a single step by the system. There is no way that the Credit note can be used by the Customer for balancing any other Invoice. The Credit Note is created with the purpose of cancelling the particular chosen Invoice.
   

• When a partially paid Invoice is cancelled in this fashion, the amount of the invoice that is pending will be fully paid this way. And the System will return the amount originally available to the Customer's Debit account.
   

• The transaction would work in exactly the same fashion if you had a Debit Note instead of an Invoice, or a Credit note instead of the Receipt.
   

• Customers can cancel an Invoice from their interface as long as it has an associated Request. In this case both the Invoice and the Associated Request will get cancelled.
   

• A Cancelled Invoice will never show a Forex Gain/Loss since the Credit Note is raised at the exact same Conversion rate as the Invoice.
   

Cancelling an Invoice/Debit Note as Bad Debt

Let's take another example here:

Suppose your Customer Roy has the following Pending Invoice

Transaction ID: 1
Invoice Amount: USD 100 (INR 5000)
Pending Amount: USD 20 (INR 1000)
Conversion Rate: 50

In the above example, you will notice that

• the above Invoice is partly paid (since the Pending Amount is USD 20 while the Invoice Amount is USD 100).

• the Selling Currency in this example is USD and the Accounting Currency is INR.

• the conversion rate between both these currencies is taken as 50. This conversion rate is the conversion rate at which the Invoice was entered or created manually or by the System.

If your Customer Roy refuses to pay the pending USD 20 to you, you may settle/balance this transaction as a bad debt,

Transaction ID: 2
Credit Note Description: Bad Debts Credit on Transaction ID 1
Credit Note Amount: USD 20 (INR 1000)
Credit Note Pending Amount: USD 20 (INR 1000)
Conversion Rate: 50

The system will now balance this Credit Note against the Invoice resulting in the below final status -

Transaction ID: 1
Invoice Amount: USD 100 (INR 5000)
Pending Amount: USD 0 (INR 0)

Transaction ID: 2
Credit Note Description: Bad Debts Credit on Transaction ID 1
Credit Note Amount: USD 20 (INR 1000)
Credit Note Pending Amount: USD 0 (INR 0)
Conversion Rate: 50

Following are a few pointers

• The process of cancelling an Invoice/Debit Note as Bad Debt is exactly the same as a normal cancellation.
   

• The Credit Note is added and balanced in a single step by the system. There is no way that the Credit note can be used by the Customer for balancing any other Invoice/Debit Note. The Credit Note is created with the purpose of cancelling the particular chosen Invoice/Debit Note.
   

• When a partially paid Invoice/Debit Note is cancelled in this fashion, the amount of the Invoice/Debit Note that is pending will be fully paid this way. You will have to manually create a Credit Note if you decide that the amount that was originally paid should be returned back to the Customer's debit account.
  
  If however, the entire Invoice was pending (ie. out of the Invoice amount of USD 100 if the complete USD 100 was pending), then the Credit Note that would be created would be of the entire USD 100.
   

• The transaction would work in exactly the same fashion if you had a Debit Note instead of an Invoice, or a Credit note instead of the Receipt.
   

• Customers can cancel an Invoice from their interface as long as it has an associated Request. In this case both the Invoice and the Associated Request will get cancelled.
   

• A Cancelled Invoice will never show a Forex Gain/Loss since the Credit Note is raised at the exact same Conversion rate as the Invoice.