When you need to return a product you have in inventory to your supplier and you expect your supplier to give you a credit note to be applied against future bills, you should follow the steps below:
1. Reduce your inventory by doing an inventory adjustment (from the Menu, Products, Adjustments), enter the part number of the product and find the inventory to return. Enter the actual quantity after the return is done in the adjustment screen. Choose a balancing account which is typically an expense account. For example, you have an asset account called Pending Supplier Return Credits. Enter the effective date and then post the adjustment. This will create an account transaction that credits your asset account for the product and then debits the balancing account chosen (Supplier Return Credits in the example)
2. When your supplier issues a credit note, you can create a negative bill to record the credit you received. Choose the supplier who issued the credit note when creating a bill, create one line in the bill and select the account used for inventory adjustment (in our example, it is an asset account called Pending Supplier Return Credits). Enter the credit as a negative amount for the bill item line and then post the bill. This bill is available to be used to offset future bill payment to this supplier.
3. When you are paying bills to this supplier, this negative bill will appear as a bill you can apply payment for. Since the amount is negative, you would need to use it to offset amounts from other bills. Choose to "pay" this bill and it will reduce the actual payment amount.