It is applied against the original invoiced amount. The buyer records it as a decrease in accounts payable. The seller records a credit memo as a reduction to accounts receivable. Refunds require issuance of payment, while credit memos reduce balances owed. What is the difference between a credit memo and a refund?Ī refund reverses an entire sale while a credit memo adjusts the amount owed on an existing invoice. When do you have to issue a credit memo?Ĭommon situations where credit memos are required include returned merchandise, pricing errors, damaged goods, overpayments by customers, negotiated discounts or allowances, and cancelled orders. Frequently Asked Questions What are the key details included in a credit memo?Ĭredit memos normally include the original invoice number, credit memo number, date, company and customer information, reason for the credit, description of credited items, and amount of the adjustment. Both buyers and sellers should retain credit memos as evidence supporting reductions applied. They allow sellers to account for returns, corrections, overpayments, and other situations requiring balances to be decreased in the books. In summary, credit memos are important documents for properly adjusting buyer accounts after invoices have been issued.
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