If this is allowed by the accounting software, it reduces the aggregate dollar amount of invoices outstanding, as well as to reduce payments to suppliers. The seller should always review its open credit memos at the end of each reporting period to see if they can be linked to open accounts receivable. Larger credit memos are usually only issued after they have been approved by a supervisor, since these credits reduce the amount of cash that the seller will collect. The seller records the credit memo as a reduction of its accounts receivable balance, while the buyer records it as a reduction in its accounts payable balance. Reasons for a Credit MemoĪ credit memo may be issued because the buyer returned goods to the seller, or there is a pricing dispute, or a marketing allowance, or other reasons under which the buyer will not pay the seller the full amount of the invoice. If the buyer has already paid the full amount of the invoice, the buyer has the option of either using the credit memo to offset a future payment to the seller, or as the basis for demanding a cash payment in exchange for the credit memo. If the buyer has not yet paid the seller, the buyer can use the credit memo as a partial offset to its invoice-based payment to the seller. A credit memo is a contraction of the term "credit memorandum," which is a document issued by the seller of goods or services to the buyer, reducing the amount that the buyer owes to the seller under the terms of an earlier invoice.
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