Credit Memo Definition, Format, Scenarios & Example

credit memo example

The credit memo is an abbreviation of a credit memorandum. It is a form of a document issued by the seller of goods or services to the buyer to show a positive balance in the customer’s account. Sellers can also issue debit notes to request additional payment if a buyer was mistakenly undercharged on a previous invoice. They can also be used to remind a buyer of debt obligations if they still owe an outstanding amount. Some businesses use debit memos as shipping receipts to show what goods the buyer is receiving.

credit memo example


  • One of the reasons could be a defective item, wrong size, color, or a customer has changed his mind.
  • If a buyer has paid the full amount of the invoice, they have two choices to settle a discrepancy in their favor.
  • Estimate generator, invoice generator, receipt maker, and purchase order generator.
  • The company can make the credit memo journal entry for the goods returned by debiting sales returns and allowances account and crediting the accounts receivable.
  • Some of them include sending out an invoice, receiving payments, and getting orders from clients.
  • A credit memo is an accounting document that helps in balancing different transactions.

One of the reasons could be a defective item, wrong size, color, or a customer has changed his mind. Assume that SellerCorp had issued a sales invoice for $800 for 100 units of product that it shipped to BuyerCo at a price of $8 each. BuyerCo informs SellerCorp that one of the units is defective. (OnlineCheckWriter or OCW) and Zil are platforms for products and services provided by Zil Money Corporation.

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It happens when a customer buys a product and there is a discount given after a day. The credit memorandum offers the difference in price paid and the new discounted price. The accounting software decreases the aggregate dollar amount of invoices outstanding and helps to manage future payments more efficiently. Formatted similar to an invoice, this Microsoft Excel template provides an itemized list for entering goods or services. There is also space for writing the reason for the credit memo, customer contact info, ID number, and date. This is a basic credit note template that provides automatic calculations for ease of use and efficiency.

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The credit memo means that the party who made a purchase from the seller will not end up paying the entirety of what was owed at the time of purchase. A credit memorandum – often shortened to credit memo – is given to a customer by a seller that provides goods and/or services. The memo is issued as a way to reduce the amount owed by the customer. The deduction is taken from an invoice that was previously issued, which is the most common type of credit memorandum. A refund receipt is a document issued upon the return of a product, serving as a definitive record that the customer has returned the product and received their money back.

  • Thus, in this blog, we will discuss the types of credit memos and credit memo features.
  • On the other hand, refund memo notifies the actual money a supplier pays to the customer.
  • For example, if a buyer issues a debit memo to a seller for returned goods that were purchased with credit terms, it indicates an adjustment to the buyer’s account payable.
  • Now that you comprehend the importance and essential components of a credit memo, it’s time to learn how to write one properly.
  • Then you should write the date when the credit memo is issued.
  • Download the template as a Word or fillable PDF file, add business details, transaction information, and other necessary content, and then email or print the completed version.

Is a credit memo a debit or credit?

There are multiple credit memos issued for diverse circumstances, let’s see what are the types of credit memos. Memo examples, like legal memorandum, can be found in the site. Just go to our home page and do a search for the type of memo you like to know more. All examples in the site are available for download by clicking on the download link button under the sample of choice. InvoiceOwl’s free credit memo Excel template has built-in formulas for automatically calculating totals. Though credit memo Excel provides error-free computations & accurate functionalities, consider customer accessibility, as not everyone may have it on their computer or mobile device.

The company can make the credit memo journal entry for the goods returned by debiting sales returns and allowances account and crediting the accounts receivable. Any transaction that happens in the business should have accounting as well as financial records. A credit memo is one of the transactions that take place post-sales when the customer sends back the goods, mentioning a reason for return. The memo issued indicates the buyer’s outstanding balance, dates, sales price, and customer details. If the company issues the credit memo for discount purposes, it can make the journal entry for credit memo by debiting the discount allowed account and crediting the accounts receivable. A debit memo may look like an invoice, but the two are distinct.

When Should You Send the Credit Memo to Your Clients?

credit memo example

Designed with efficiency in mind, this debit note template looks similar to an invoice and is used by both the sender and the receiver. Enter a date for the note and explanation for why it is being sent, and then add details about items being returned, payments owed, or invoice corrections that need to be accounted for. The template also provides room for a business address, phone number, and other important details. Not everyone knows how to record an accounting entry, which is why we have written this article. It helps record a certain transaction to maintain the financial statements.

How to Track Credit Memos

credit memo example

Get InvoiceOwl as a comprehensive financial toolkit to elevate your overall business success. From quick estimates bidding to instant invoice creation, on the go payment options to electronically signing documents, InvoiceOwl will never fails to amaze you. Irrespective of defects, shipping mishaps, miscalculated discounts, or any other discrepancies – quickly make things right with our free printable credit memo template. Plus, automation eliminates manual work and bookkeepers, eventually removing the frauds that might be committed by manpower. Another benefit of Automating is it ensures a proper application of credit memos.


Do not limit yourself to credit memos, explore our free invoice template and estimate template galleries as well. In the buyer’s account, suppliers account is debited, and the purchase is credited. Bank issues a credit memo to increase a depositor’s account for a certain transaction.

However, we provide banking services through our partnership with FDIC-insured reputable banking and financial institutions, including Silicon Valley Bank (SVB), EastWest Bank and Texas National Bank. Mr. Edward bought some clothes from Clothing Suppliers, LLC. The company’s return policy is that they will accept returns within 15 business days after the purchase is made. Returns will be reimbursed in the form of store credit only.

In this scenario, a credit memorandum should be used since the company needs to reduce a previously issued invoice to compensate the client for the damaged goods. A credit memo reduces the total balance of a buyer’s account. The process is usually started when a buyer issues a debit memo planning to reduce his balance with a discount due either to damaged or wrong goods. The buyer would wait for the seller to issue a credit memo verifying agreement to the debit memo.

Today, most of the businesses are using accounting software to account and issue sales invoices as well as credit memo/ credit note. Accounting software has benefited business by providing the complete tracking of order to invoice till issuing of credit memo and more importantly, auto-update on the accounts and bill’s receivables. A credit memorandum Navigating Financial Growth: Leveraging Bookkeeping and Accounting Services for Startups is a document sent by the seller to a buyer and comes typically after an invoice is issued. A simple explanation is that the document reduces part of the cost price and sometimes the whole amount charged. For a refund, you get the full amount back from the seller. Sales returns and allowances account is a contra account to the sales revenue.

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