Debit and credit memos are accounting transactions used for many different reasons. They are typically used by a company's accounts receivable or accounts payable department to make an account adjustment. When a credit memo or a debit memo posts to an account, it will either show a credit or a charge, depending on which transaction you use.
A debit memo can be found on a customer's account with many businesses, or sometimes even on a bank statement. Credit memos are used to make corrections to a customer's account when the customer may owe money on a transaction. When someone fails to pay or hasn't paid enough on an invoice, it is common practice for a business to issue a debit memo for the balance owed.
Creating a Debit Memo
Many financial software programs have templates that help create debit memos. It is important when creating a debit memo that you include the date of the original transaction for which the money is owed, the reason for the debit memo and the amount owed. It is also a good idea to send a copy of the debit memo to the customer with an explanation of why he may owe more money.
Credit memos are transactions on an invoice to show credit is owed to a customer. They may show that the customer is canceling a service, is returning merchandise or is owed money for other reasons.
Creating a Credit Memo
When creating a credit memo, it is important to include the date and a description of the original transaction. Include a reference number if there is one available. Many different types of accounting software, spreadsheets or word processors offer tools to create a credit memo.