Do you know about Debit and Credit Memo? How does it work?
A debit memo refers to an amount deducts from bank accounts. In other meaning, a check is written and place to bank accounts is to same effects in accounts.
Bank charges from accounts holder bank charges for deposited amount into bank accounts, loan payments and loan interest, if dishonored any cheque, transferred a cheque from others bank accounts and other service charges.
In bank book, the account holder balance is a liability on a bank’s books. That’s why bank deducts that kind of charges from accounts holders. On these terms bank has money as one of its assets and your account balance is liabilities to the bank. When you deposited in your bank accounts, increased assets in bank accounts and also increased liabilities of the bank. On the other hand, when account holder withdrawal an amount from the bank, bank liabilities is reduced from bank balance which is reduced with a debit entry.
A credit memo is stated to as a credit memorandum when a depositor’s withdrawal from his bank accounts by a cheque for a certain transaction.
Another type is that When a memo is issued by a seller for reducing the owe amount from a customer which is previously issued from selling invoice. For example, XYZ Corporation had issued a sale invoice for amount $ 1000 for 100 units of goods that it shipped at XYZ Buyer Corp. which price is $10 each but XYZ buyer Corp. informs that one unit is damaged and XYZ seller Corp. issue a credit memo of $10. XYZ seller Corp. is recorded credit memo in accounts given below:
- The debit of $10 of sales retunes and Allowances
- A credit of $10 of Accounts receivable.
In this transaction, credit memo reduces seller’s net income and Accounts Receivable. When XYZ buyer corp. records credit memo in accounts is given below;
- Credit of $10 to purchase returns and allowances
- A Debit of $10 to Accounts Payable.
A debit memo is related to bank charges and other fees of bank management to depositors.
On the other hand, the credit memo is related to sellers which are charges accounts receivable, payables, return and allowances.