Dictionary / Credit Memorandum
What does Credit Memorandum mean in accounting?
Quick definition
GeneralDocument whereby a buyer receives notice of credit granted by the seller. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
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Examples
Credit memo after a customer return
You run a commercial kitchen supply shop. A restaurant client returns a dented 40-qt mixer bowl from the March 4 invoice, and on March 11 you send them a credit memorandum for $214. In QuickBooks Online, create a Credit memo to that restaurant for $214, coded to sales returns (or the original sales account); accounts receivable drops $214 and their aging shows an open credit they can apply to the next invoice. Do not create a new invoice, which would raise AR again. File the credit memorandum with the original credit sale support.
Vendor credit, not your debit memo
You run a landscape company. You already entered a nursery's May 4 bill for $1,840 of shrubs when, on May 18, they mail a credit memorandum for $220 because eight plants were undersized. Enter a vendor credit in QuickBooks Online against that nursery for $220, coded to the same plants or inventory account as the bill, so accounts payable drops $220. Do not write your own debit memorandum unless they never sent the paper, and do not wait for a refund check if they said apply it to the next order. The seller's notice is the source document.
Why it matters
A credit memorandum is the seller's paper telling the buyer they granted a credit, usually after a return, a price allowance, or a billing error; your software often labels the same paper a credit memo or a vendor credit. You will not post one every close; it shows up a few times a year when goods come back or an invoice is reduced after the original credit sale, which is what created the receivable or payable this document then reduces. A debit memorandum is the opposite document: it creates a debit, not a credit. Skip the paper or post it as a new invoice and accounts receivable or accounts payable stay too high, so match the notice to the open invoice or bill before you close.
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What is Credit Memorandum in bookkeeping?
Document whereby a buyer receives notice of credit granted by the seller.
When should I use Credit Memorandum?
Use Credit Memorandum when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Credit Memorandum?
Credit Memorandum is used for credit memorandum entries, while C&F covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.