A credit memo decreases the amount a customer owes you. You can use a credit memo to reverse a charge billed to a customer. For example, last week you billed Maple Street School for 10 keyboards at $20 each. Upon realizing they had one keyboard too many, the school returned the extra keyboard. When the returned keyboard is received, you issue a credit memo to decrease the total amount the school owes. Issuing a credit memo posts to the journal accounts affected by the credit memo.
Because crediting an item reduces the amount you expect this customer to pay, it reduces the total funds you are expecting to receive. This posts as a $20 decrease to the Accounts Receivable account. Crediting the item decreases the total amount of your income from sales. This posts as a $20 decrease to the Sales Income account.
These journal lines are posted by the credit memo:
| Account | Debit | Credit |
|---|---|---|
| Sales Income | $20 | |
| Accounts Receivable (AR) | $20 |