Credit Memorandum Definition - The Strategic CFO® (2024)

• Tags:accounts payable, accounts receivable, buyer, collections, credit, credit memo, invoice
• By: Dan
• July 23, 2013

See Also:
Debit Memorandum (memo)
Credit Sales
Account Reconciliation
Chart of Accounts (COA)
Transaction Exposure
General Ledger Reconciliation and Analysis
Debt Compliance 101: Keeping Your Banker Happy

What is Credit Memorandum?

The credit memorandumdefinition or memo is a form or document, sometimes called a credit memo invoice, that informs a buyer that the seller will be decreasing or crediting the amount that the buyer owes in accounts payable, thus decreasing the amount of accounts receivable in the seller’s account.

Credit Memorandum Meaning

A credit memo is often issued when a seller has made some sort of mistake, or extenuating circ*mstances have been brought to light which require an adjustment towards a sale. Credit memos from a bank are usually in regard that a bank if reversing some sort of transaction in which the bank made a payment it should not have, or the bank may have made a collection upon a note receivable or a certificate of deposit. When the latter occurs the bank will transfer the collection of funds into the depositor’s account.

Credit Memorandum Example

For example, Cindy works for Fluffy Stuffs Inc. as a part of its sales staff. The company has recently sent an order to Toys N’ More for a price based upon last month’s prices. Cindy just received the new prices the sales staff is supposed to charge customers. These prices are much lower than the past due to a drop in the market price for stuffing. Therefore Cindy sends a credit memo form to Toys N’ More informing them that they should reduce the amount that they owe to Fluffy Stuffs. Fluffy Stuffs will also reduce its accounts receivable by the same amount.