In this journal entry, net sales revenue on the income statement and total assets on the balance sheet reduce by $1,000. Account Debit Credit Sales returns and allowances 1,000 Accounts receivable 1,000 In this case, the company ABC can make the journal entry for credit memo by debiting the $1,000 in sales returns and allowances account and crediting the $1,000 in accounts receivable to reduce the amount that the customer owes. The goods were sold on credit for $1,000 in the previous week and the customer had not made the payment yet. Account Debit Credit Sales revenue 000 Accounts receivable 000 Credit memo exampleįor example, on June 7, the company ABC issues a $1,000 credit memo to one of its customers for the goods that are returned due to the damage. If the company issues a credit memo to a customer to correct an error that makes an overstatement of the sale amount, it can make the journal entry for such a credit memo by debiting the sales revenue account and crediting the accounts receivable.

Hence, this journal entry will also result of reducing the net sales revenue and total assets of the company.Ĭorrecting overstated amount in the invoice The same as the sales returns and allowances account, the discount allowed account is also a contra account to sales revenue. Account Debit Credit Discount allowed 000 Accounts receivable 000 If the company issues the credit memo for discount purposes, it can make the journal entry for credit memo by debiting the discount allowed account and crediting the accounts receivable. Likewise, this journal entry will reduce both the net sales revenue on the income statement and the total assets on the balance sheet by the same amount. Sales returns and allowances account is a contra account to the sales revenue. Account Debit Credit Sales returns and allowances 000 Accounts receivable 000 The company can make the credit memo journal entry for the goods returned by debiting sales returns and allowances account and crediting the accounts receivable. In this case, the balance of the customer account will increase by the amount collected. For example, the bank may issue a credit memo for the notes collected on behalf of the customer. In this case, the company needs to make the credit memo journal entry in the accounting record in order to reflect the actual accounts receivable on the balance sheet as well as the total net sales revenue on the income statement.Ĭredit memo is also used in the bank to increase the balance of the bank’s customer account. The company sometimes may issue the credit memo to the customers in order to reduce the amount they owe the company for various reasons such as goods returned, discount, or invoice error that leads to overstatement of the sale amount, etc.

Credit memo definition